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SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549
 FORM 10-K
 
  [ X ]
  OR [    ]
              TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                    OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from      to Commission File Number 0-25226 EMERSON RADIO CORP. 
  Delaware
    
    22-3285224(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification Number)Nine Entin Road, Parsippany, NJ
    
    07054(Address of principal executive offices)
    
    (Zip Code)
 Registrants telephone number, including area code: (973) 884-5800 Securities registered pursuant to Section 12(b) of the Act: Title of each class
    
    Name of each exchange on which registeredCommon Stock, par value $.01 per share
    
    American Stock Exchange
 Securities registered
pursuant to Section 12(g) of the Act: None.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirement for the past 90 days. [X] YES [  ] NO. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrants knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [  ] Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act) [   ] YES [X] NO. Aggregate market value of the voting and non-voting common equity of the
registrant held by non-affiliates of the registrant at September 30, 2003
(computed by reference to the last reported sale price of the Common Stock on
the American Stock Exchange on such date): $66,015,866. Number of Common Shares outstanding at June 16, 2004: 26,630,383 DOCUMENTS INCORPORATED BY REFERENCE: Document
    
    Part of the Form 10-KProxy Statement for 2004 Annual Meeting of
Stockholders
    
    Part III




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TABLE OF CONTENTS  PART IItem 1. BUSINESSItem 2. PROPERTIESItem 3. LEGAL PROCEEDINGSItem 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERSPART IIItem 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSER REPURCHASES OF EQUITY SECURITIESItem 6. SELECTED CONSOLIDATED FINANCIAL DATAItem 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSItem 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKItem 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTING FIRMCONSOLIDATED STATEMENTS OF OPERATIONSCONSOLIDATED BALANCE SHEETSCONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITYCONSOLIDATED STATEMENTS OF CASH FLOWSNOTES TO CONSOLIDATED FINANCIAL STATEMENTSItem 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSUREItem 9A. CONTROLS AND PROCEDURESPART IIIItem 10. DIRECTORS AND EXECUTIVE OFFICERSItem 11. EXECUTIVE COMPENSATIONItem 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERSItem 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONSItem 14. PRINCIPAL ACCOUNTANT FEES AND SERVICESPART IVItem 15. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-KSIGNATURESVALUATION AND QUALIFYING ACCOUNTS AND RESERVESThird Amendment to License AgreementSecond Amendment to LeaseFifth Amendment to Loan and Security AgreementCode of Ethics for Senior Financial OfficersSubsidiariesConsent of BDO Seidman, LLPConsent of Ernst & Young LLPCertification of the Company's CEOCertification of the Company's CFOCertification of the Company's CEO and CFO    Table of Contents  
 PART I This Annual Report on Form 10-K contains, in addition to historical
information, forward-looking statements (within the meaning of Section 27A
of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended) that involve risks and uncertainties. See
Business- Forward-Looking Statements. 
 Item 1. BUSINESS The Company We operate in two business segments:  
    
    consumer electronics; and  
    
    sporting goods. The consumer electronics segment designs, sources, imports and markets a
variety of consumer electronic products and licenses its trademarks for a
variety of products world wide. The sporting goods segment, which is operated
through our 53% ownership of Sport Supply Group, Inc., distributes and markets
sports related equipment and leisure products primarily to institutional
customers in the United States. Emerson was originally formed in the State of New York in 1956 under the
name Major Electronics Corp. In 1977, we reincorporated in the State of New
Jersey and changed our name to Emerson Radio Corp. In 1994, we were
reincorporated in the State of Delaware. Our principal executive offices are
located at Nine Entin Road, Parsippany, New Jersey 07054-0430. Our telephone
number in Parsippany, New Jersey, is (973) 884-5800. Unless the context otherwise requires, the term:  
    
    Emerson refers to our consumer electronics segment
which is operated through Emerson Radio Corp. and its
subsidiaries, other than SSG;  
    
    SSG refers to our sporting goods segment which is
operated through Sport Supply Group, Inc. and its subsidiaries;
and  
    
    we, us and our refers to both Emerson and SSG. For additional disclosures of our business segments and major customers,
as well as financial information about geographical areas, see Item 8 
Financial Statements and Supplemental Data -Note 14 of Notes to Consolidated
Financial Statements. 2




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Supervision and Regulation We file reports and other information with the Securities and Exchange
Commission (SEC) pursuant to the information requirements of the Securities
Exchange Act of 1934. Readers may read and copy any document we file at the
SECs public reference room at 450 Fifth St. N.W., Washington, D.C. 20549.
Please call the SEC at 1-800-SEC-0330 for further information on the operations
of the public reference room. Our filings are also available to the public
from commercial document retrieval services and at the SECs website at
www.sec.gov. We make available through our internet website free of charge our annual
report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form
8-K, amendments to such reports and other filings made by us with the SEC, as
soon as practicable after we electronically file such reports and filings with
the SEC. Our website address is www.emersonradio.com. The information
contained in our website is not incorporated by reference in this report. On March 5, 2004, SSG filed a Form 15 with the Securities and Exchange
Commission giving notice of the termination of the registration of its
securities and the suspension of duty to file periodic reports under Sections
13 and 15(d) of the Securities Exchange Act of 1934. As a result, SSG is no
longer required to file annual reports on Form 10-K, quarterly reports on Form
10-Q or current reports on form 8-K with the SEC. Consumer Electronics Segment General Emerson, directly and through several subsidiaries, designs, sources,
imports, markets, sells and licenses to certain licensees a variety of consumer
electronic products, both domestically and internationally, under the Emerson®
and HH Scott® brand names. These products include:  
    
    video products -  televisions, combination
television/VCR/DVD, digital video disc (DVD), video cassette
recorders (VCR) and set top boxes;  
    
    microwave ovens;  
    
    audio, clocks and clock radios, home theater systems and multi-media;  
    
    houseware products; and  
    
    video accessories, telecommunication equipment, certain
computer accessories, specialty, other consumer electronic
products and mobile electronics. Emerson also licenses a variety of specialty themed logos and marks from
third parties for use on audio products that bear the names of these third
parties. We refer to these licenses as inward licenses. 3




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The trade name Emerson Radio dates back to 1912 and is one of the oldest
and most well respected names in the consumer electronics industry. See
Consumer Electronics Segment  - Licensing and Related Activities. Emerson believes it possesses an advantage over its competitors due to the
combination of:  
    
    the [Emerson Logo] brand recognition;  
    
    its distribution base and established customer relations;  
    
    its sourcing expertise and established vendor relations;  
    
    an infrastructure with personnel experienced in
servicing and providing logistical support to the domestic mass
merchant distribution channel; and  
    
    its extensive experience in establishing license and
distribution agreements on a global basis for a variety of
products. Emerson intends to continue leveraging its core competencies to offer a
broad variety of current and new consumer electronic products to customers. In
addition, Emerson intends to enter into additional licenses of third party
trade names and trademarks by third parties (inward licenses), as well as
licenses for the use of Emersons trade names and trademarks (outward
licenses) and distribution agreements that take advantage of Emersons
trademarks and utilize the logistical and sourcing advantages for products that
are more efficiently marketed through these agreements. We continuously
evaluate potential licenses and distribution agreements. In March 2003, Emerson
entered into a license agreement with Nickelodeon to license the Nickelodeon
name, trademark and logo, along with several other of Nickelodeon trademarks
and logos. See -  Consumer Electronics Segment  Licensing and Related
Activities. Emersons core business consists of selling, distributing, and licensing
various low to moderately priced categories of consumer electronic products.
The majority of Emersons marketing and sales efforts are concentrated in the
United States and, to a lesser extent, certain other international regions.
Major competitors in these markets are foreign-based manufacturers and
distributors. See Consumer Electronics Segment - Competition. Products Emersons current product and branded categories consist of the following: Video Products
    
    Audio Products
    
    OtherTelevisions
    
    Portable stereo systems
    
    House waresSpecialty televisions
    
    Digital clock radios
    
    Home theaterDigital video disc (DVD)
    
    Shelf stereo systems
    
    Microwave ovensSpecialty video cassette players
    
    Specialty clock radios
    
    Multi-mediaVideo cassette recorders (VCR)
    
    
    
    Telecommunications
 4




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Growth Strategy We believe growth opportunities exist through the implementation of the
following:  
    
    higher penetration levels within our existing customers
through increases in the products offered and sold to existing
accounts;  
    
    expansion of our existing customer base in United
States through our sales staff and sales representative
organizations;  
    
    expansion of our existing worldwide customer base
through our foreign distribution agreements and direct selling,
particularly in Europe and Asia;  
    
    expansion into distribution channels we are not
currently utilizing through new products that are being offered
by Emerson;  
    
    development and sales of new products not presently
being offered by Emerson, such as electronics and accessories
that utilize popular theme characters and logos through the use
of various trademarks licensed from third parties;  
    
    further development of our direct to consumer sales
channel, through Emersons internet web-site;  
    
    continuing to capitalize on the [Emerson logo] and H.H. Scott®
trademarks through continued efforts to enter into license
agreements with third parties to license the [Emerson logo] and H.H. Scott®
trademarks for products not currently being sold, and in
geographic areas not presently being serviced; and  
    
    expansion through strategic mergers and acquisitions of
other businesses. In connection with Emersons strategic focus, Emerson may acquire an
equity position in other corporate entities. Emerson believes that the [Emerson logo] trademark is recognized in many countries. A
principal component of Emersons growth strategy is to utilize this global
brand name recognition together with its reputation for quality and cost
competitive products to aggressively promote its product lines within the
United States and targeted geographic areas on an international basis. Emerson
believes that it will be able to compete more effectively in the highly
competitive consumer electronics and microwave oven industries, domestically
and internationally, by combining innovative approaches to its current product
line and augmenting its product line with complimentary products. Emerson
intends to pursue such plans either independently or by forging new
relationships, including license arrangements, distributorship agreements and
joint ventures. See Consumer Electronics Segment - Licensing and Related
Activities. 5




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Sales and Distribution Emersons Direct Import Program allows its customers to import and receive
product directly from Emersons manufacturers located outside the United
States. Under the Direct Import Program, title for its products passes in the
country of origin upon shipment of the product by the manufacturer. Emerson
also sells product to customers from its U.S. based finished goods inventory,
which is referred to as its Domestic Program. Under the Domestic Program,
title for its products primarily passes at the time of shipment. Under both
programs, we recognize revenues at the time title passes to the customer. See
Item 7 - Managements Discussion and Analysis of Results of Operations and
Financial Condition. Emerson has an integrated system to coordinate the purchasing, sales and
distribution aspects of its operations. Emerson receives orders from its major
accounts electronically, via electronic data interface (EDI), facsimile,
telephone or mail. Emerson does not have long-term contracts with any of its
customers, but rather receives orders on an ongoing basis. Products imported
by Emerson, generally from the Far East, are shipped by ocean and/or inland
freight and then stored in contracted public warehouse facilities for shipment
to customers. All inventory is monitored by Emersons electronic inventory
system. As a purchase order is received and filled from inventory, warehoused
product is labeled and prepared for outbound shipment to customers by common,
contract or small package carriers for sales made from inventory. Domestic Marketing In the United States, Emerson markets its products primarily through:  
    
    mass merchandisers;  
    
    discount retailers;  
    
    toy retailers; and
    
    distributors and specialty catalogers. In fiscal 2004 and 2003, Wal-Mart Stores accounted for approximately 25%
of our consolidated net revenues and Target Stores accounted for approximately
15% and 17% of our consolidated net revenues, respectively, and in fiscal 2003,
K-Mart accounted for approximately 12% of our consolidated net revenues. No
other customer accounted for more than 10% of our consolidated net revenues in
either period. Management believes that a loss, or a significant reduction of
sales to Wal-Mart or Target would have a material adverse effect on our
business and results of operations. Approximately 49% and 59% of the net consumer electronics revenues in
fiscal 2004 and 2003, respectively, were made through third party sales
representative organizations that receive sales commissions and work in
conjunction with Emersons own sales personnel. With Emersons permission,
third party sales representative organizations may sell competitive 6




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products in addition to Emersons products. In most instances, either
party may terminate a sales representative relationship on 30 days prior notice
by Emerson and 90 days prior notice by the sales representative organization in
accordance with customary industry practice. Emerson utilizes approximately 24
sales representative organizations, including two through which approximately
15% and 10% of the net consumer electronics revenues were made in fiscal 2004.
For fiscal 2003, two sales organizations accounted for approximately 23% and
19% of the net consumer electronics revenues. No other sales representative
organization accounted for more than 10% of the consumer electronics net
revenues in either year. The remainder of Emersons sales are serviced by its
sales personnel. Management does not believe that the loss of one or more
sales representative organizations would have a material adverse effect on our
business and results of operations. Foreign Marketing Emerson primarily markets and distributes its products in the United
States. Accordingly, foreign sales account for less than 10% of total revenues
and are not considered material. Emerson intends to expand its existing
worldwide customer base through its foreign distribution agreements and direct
selling, particularly in Europe and Asia. Licensing and Related Activities Emerson has several license agreements that allow licensees to use our
trademarks for the manufacture and/or the sale of consumer electronics and
other products and are referred to as outward licenses. These license
agreements allow the licensee to use our trademarks by a specific product
category, or by a specific geographic area that primarily includes some or all
the countries located in North America, South America, Mexico and parts of
Europe, or by a specific customer base, or by any combination of the above, or
any other category that might be defined in the license agreement. These
license agreements are subject to renewal at the initial expiration of the
agreements and are governed by the laws of the United States, and have
expiration dates ranging from November 2004 through January 2007. Total
license revenues recognized and earned in fiscal 2004, 2003, and 2002 were
approximately $10,973,000, $10,388,000, and $6,952,000, respectively. Emerson
records licensing revenues as earned over the term of the related agreements. Effective January 1, 2001, Emerson entered into a license agreement
(Video License Agreement) with Funai Corporation, Inc. (Funai), which was
amended, to extend the Video License Agreement to December 31, 2005. The Video
License Agreement provides that Funai will manufacture, market, sell and
distribute specified products bearing the [Emerson logo] trademark to customers in U.S. and
Canadian markets. Under the terms of the agreement, Emerson will receive
non-refundable minimum annual royalty payments of $4.3 million each calendar
year and a license fee on sales of products subject to the Video License
Agreement in excess of the minimum annual royalties. During fiscal 2004, 2003
and 2002, license revenues of $8,759,000, $8,520,000 and $5,624,000,
respectively, were recorded under this agreement. Throughout various parts of the world, Emerson maintains distribution and
outward license agreements that encompass various Emerson branded products into
defined geographic areas. 7




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Emerson intends to pursue additional licensing and distribution
opportunities and believes that such activities have had and will continue to
have a positive impact on operating results by generating income with minimal
incremental costs, if any, and without the necessity of utilizing working
capital. See Item 7 -Forward Looking Information and Managements
Discussion and Analysis of Results of Operations and Financial Condition. Effective March 2003, Emerson entered into a license agreement with MTV
Networks to license the Nickelodeon name, trademark and logo, along with
several of Nickelodeons trademarks and logos. The initial term of the
agreement expires in December 2005, and includes an option to extend the
initial period by one year. Additionally, Emerson entered into a second
contract with MTV Networks for increased Nickelodeon character trademarks and
logos, along with expanded product categories. The term of this second
contract expires in December 2006. These licenses provide Emerson with the
rights to use such marks in the United States, and require certain minimum
royalties to be paid to MTV Networks. Design and Manufacturing Emersons products are manufactured by several original equipment
manufacturers in accordance with Emersons specifications. During fiscal 2004
and 2003, 100% of Emersons purchases consisted of imported finished goods from
manufacturers primarily located in:  
    
    South Korea;  
    
    China;  
    
    Malaysia; and  
    
    Thailand. Emersons design team is responsible for product development and works
closely with Emersons suppliers. Emersons engineers determine the detailed
cosmetic, electronic and other features for new products, which typically
incorporate commercially available electronic parts to be assembled according
to their design. Accordingly, the exterior designs and operating features of
the products reflect Emersons judgment of current styles and consumer
preferences. Emersons designs are tailored to meet the consumer preferences
of the local market, particularly in the case of its international markets. The following summarizes Emersons purchases from its major suppliers: Fiscal YearSupplier
    
    2004
    
    2003StarLite
    
    
    15
    %
    
    
    *Avatar Mfg
    
    
    14
    %
    
    
    21
    %GMT Industries
    
    
    12
    %
    
    
    12
    %Daewoo
    
    
    12
    %
    
    
    10
    %Lasco Industries
    
    
    10
    %
    
    
    ** - less than 10%
 8




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No other supplier accounted for more than 10% of Emersons total purchases
in fiscal 2004 or 2003. Emerson considers its relationships with its suppliers
to be satisfactory and believes that, barring any unusual material or part
shortages or economic, fiscal or monetary conditions Emerson could develop, as
it already has, alternative suppliers. No assurance can be given that ample
supply of product would be available at current prices if Emerson were required
to seek alternative sources of supply without adequate notice by a supplier or
a reasonable opportunity to seek alternate production facilities and component
parts. See Item 7 - Managements Discussion and Analysis of Results of
Operations and Financial Condition and Forward - Looking Information, and
Item 7A - Inflation and Foreign Currency. Warranties Emerson offers limited warranties for its consumer electronics, comparable
to those offered to consumers by its competitors in the United States. Such
warranties typically consist of a 90 day period for audio products and one year
period for microwave products, under which Emerson will pay for labor and
parts, or offer a new or similar unit in exchange for a non-performing unit. Returned Products Emersons customers return product to Emerson for a variety of reasons,
including:  
    
    retailer return policies with their customers;  
    
    damage to goods in transit and cosmetic imperfections; and  
    
    mechanical failures. Emerson has entered into agreements with the majority of its suppliers
that require the supplier to accept returned defective product. Emerson pays a
fee to the supplier and in exchange receives a unit. Backlog We do not believe that backlog is a significant factor in our consumer
electronics segment. The ability of management to correctly anticipate and
provide for inventory requirements is essential to the successful operation of
our consumer electronics business. Trademarks Emerson owns the:  
    
    [Emerson logo]; 9




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
    
    Emerson Research®;  
    
    Emerson Interactive sm;  
    
    Girl Power TM;  
    
    H.H. Scott®; and  
    
    Scott® trademarks for certain of its home entertainment and consumer electronic
products in the United States, Canada, Mexico and various other countries. Of
the trademarks owned by Emerson, those registered in the United States and
Canada must be renewed at various times through 2011 and 2014, respectively.
Emersons trademarks are also registered in various other countries, which
registrations must be renewed at various times. Emerson intends to renew all
trademarks necessary for its business. Emerson considers the [Emerson logo] and HH Scott®
trademarks to be of material importance to its business and, to a lesser
degree, the remaining trademarks. Emerson licenses the [Emerson logo] and HH Scott®
trademark to third parties, the scope of which is on a limited product and
geographic basis and for a period of time. See Consumer Electronics Segment -
Licensing and Related Activities. Competition As published in the Consumer Electronics Association Market Research
report, the market segments of the consumer electronics industry in which
Emerson competes generates approximately $21 billion of factory sales annually
and is highly fragmented, cyclical and very competitive. The industry is
characterized by the short life cycle of products, which requires continuous
design and development efforts. Emerson primarily competes in the low to medium-priced sector of the
consumer electronics market. Management estimates that Emerson has several
dozen competitors that are manufacturers and/or distributors, many of which are
much larger and have greater financial resources than Emerson. Emerson
competes primarily on the basis of:  
    
    its reliability;  
    
    quality;  
    
    price;  
    
    design;  
    
    consumer acceptance of its products; and  
    
    quality service and support to retailers and their customers. 10




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Emerson also competes at the retail level for shelf space and promotional
displays, all of which have an impact on its established and proposed
distribution channels. Seasonality Emerson generally experiences stronger demand from its customers for its
products in the fiscal quarters ending September and December. However, during
the last several years, this revenue pattern has been less prevalent due to the
need for retailers to plan earlier for the winter holiday selling season and
our managements ability to obtain additional orders to meet additional product
demand during the March and June fiscal quarters. Working Capital Our consumer electronics segment is impacted by its seasonality in that it
generally records the majority of annual sales in the quarters ending September
and December, requiring it to maintain higher inventory levels during the
quarters ending June and September, therefore increasing the working capital
needs during these periods. Management believes that the outward license
agreements, sales margin stability and the policies in place for returned
products should continue to favorably impact our cash flow. Management
believes that anticipated cash flow from operations and the financing presently
in place will provide sufficient liquidity to meet its operating and debt
service cash requirements in the year ahead. Management believes the companys
working capital practices are similar to those of its competitors. Sporting Goods Segment General Management believes SSG is a leading direct mail marketer of sports
related equipment and leisure products for sale primarily to the institutional
market in the United States. From July 2003 through October 2003, certain of SSGs team dealer
locations were discontinued. In November 2003, SSG sold all of the issued and
outstanding capital stock of its wholly-owned subsidiary, Athletic Training
Equipment Company, Inc. (ATEC). Collectively, SSG refers to these as
Discontinued Operations and accordingly, the accompanying financial
statements reflect these as discontinued operations. These transactions helped
reduce the overhead of SSG along with providing funds to reduce the debt of
SSG. Products Management believes SSG manufactures and distributes one of the broadest
lines of sporting goods, physical educational, recreational and leisure
products to the institutional market. SSG offers over 10,000 products, of
which SSG manufactures approximately 1,000 of these products and the remainder
are purchased from other manufacturers. The SSG product lines include:
archery; baseball; softball; basketball; camping; football; tennis and other
racquet sports; gymnastics; indoor recreation; game tables and physical
education; soccer; field and floor 11




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hockey; lacrosse; track and field; volleyball; weight lifting; fitness
equipment; outdoor playground equipment; and early childhood development
products. Management believes brand recognition is important to the institutional
market. Most of SSGs products are marketed under trade names or trademarks
owned or licensed by SSG and include the following: Alumagoal®
    
    Blastball®
    
    BSN®Champion Barbell
    
    Curvemaster®
    
    FibersportFlag A Tag®
    
    Gamecraft
    
    GSC SportsMaxpro®
    
    MacGregor®
    
    New England Camp & SupplyNorthAmerican Recreation®
    
    Passons Sports
    
    Pillo Polo®Port-A-Pit®
    
    Pro Base®
    
    Pro Down®Pro Net
    
    Rol-Dri®and Tidi-Court
    
    Toppleball®U.S. Games, Inc®
    
    Voit®
 Growth Strategy SSG believes it is well positioned to grow its business due to:  
    
    its ability to process and fulfill a high capacity of orders;  
    
    its well-developed expertise in catalog design and merchandising; and  
    
    its information technology system and its Internet platform. One of the most important contributions of SSGs information technology
platform is that the order processing and fulfillment capabilities are
integrated throughout the operations of SSG, including all of SSGs websites.
Each website is strategically targeted to a specific customer group or product
line. The continued migration of SSGs customers to its websites is important
to SSGs growth and success. Sales and Distribution SSGs websites enable its customers to place orders, access account
information, track orders, and perform routine customer service inquiries on a
real-time basis, twenty-four hours a day, seven days a week. This
functionality allows for more convenience and added flexibility for its
customers. SSGs sourcing, warehousing, distribution and fulfillment capabilities and
its fully integrated information system, provide the necessary capacities,
logistics, information and technological capabilities to meet the demands and
growth potential of commerce. 12




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Domestic Marketing SSG offers products directly to the institutional market primarily
through:  
    
    a variety of distinctive, information-rich catalogs;
    
    sales personnel strategically located in certain large metropolitan areas;  
    
    in-bound and out-bound telemarketers;  
    
    a team of experienced bid and quote personnel; and  
    
    the Internet. SSGs marketing efforts are supported by a database of over 250,000
customers, a call center, a custom-designed distribution center and several
manufacturing facilities. SSG currently offers approximately 10,000 sports
related equipment products to over 100,000 customers, which include: public
and private schools; colleges; universities and military academies; municipal
and governmental agencies; military facilities; churches; clubs; camps;
hospitals; youth sports leagues; non-profit organizations; team dealers; and
certain large retail sporting goods chains. SSG believes that its customer base in the United States is the largest in
the institutional direct mail market for sports related equipment. Licensing and Related Activities SSG has inward licenses for certain well-known names and trademarks that
allow it to manufacture, sell, and distribute specified sport related products
and equipment to institutional customers using the licensed names for specified
royalty fees paid to licensors. See Business-Sporting Goods Segment -
Trademarks. Design and Manufacturing SSG manufactures, assembles and distributes many of its products at its
facilities. See Item 2  - Properties. Most of SSGs manufactured products are standardized. Certain products
manufactured by SSG are custom made; such as tumbling mats ordered in color or
size specifications. The principal raw materials used by SSG in manufacturing
are, for the most part, readily available from several different sources. No
one supplier accounts for more than 10% of the total raw materials supplied to
SSG. Such raw materials include: foam; vinyl; nylon thread; steel and aluminum
tubing. Items not manufactured by SSG are purchased from various suppliers
primarily located in the United States, Taiwan, Australia, the Philippines,
Thailand, China, Pakistan, Sweden and Canada. SSG has no significant purchase
contracts with any major supplier of finished products, and most products
purchased from suppliers are available from other sources. Purchases of most
finished products are made in U.S. dollars and are, therefore, not subject to
direct foreign exchange rate differences. 13




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Warranties SSG typically offers limited warranties for its sporting goods, which are
comparable to its competitors. Returned Products In most instances, SSGs customers have the right to return product within
30 days. Returned products in the sporting goods segment are less frequent
than the consumer electronics segment, and are not considered a significant
factor in SSGs operations. Backlog SSG had a backlog of approximately $2.2 million at March 31, 2004, $2.9
million at March 31, 2003, and $2.0 million at March 31, 2002. Trademarks SSG licenses certain well known trade names and trademarks allowing it to
manufacture, sell, and distribute specified sport related products and
equipment to institutional customers using these names for specified royalty
fees. These license agreements have expiration dates ranging from December 2004
through 2040, in some cases with renewable terms and include our license with
MacGregor®, which expires in 2040 and allows us to manufacture, promote, sell
and distribute specified products and equipment under the MacGregor® name. Competition SSG competes in the institutional sporting goods market principally with:  
    
    local sporting goods dealers;  
    
    retail sporting goods stores;  
    
    other direct mail catalog marketers; and  
    
    providers of sporting goods on the Internet. SSG has identified approximately 15 other direct mail and internet
companies in the institutional market most of whom management believes are
competitors that are substantially smaller than SSG in terms of geographic
coverage, products, e-commerce capability, customer base and revenues. SSG competes in the institutional market principally on the basis of
brand, price, product availability and customer service. SSG believes it has an
advantage in the institutional market over traditional sporting goods retailers
and team dealers because its selling prices do not include comparable price
markups attributable to traditional multi-distribution channel markups. In
addition, 14




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SSGs expansive product lines and the ability to control the availability
of goods that SSG sources enables it to respond more rapidly to customer
demand. Seasonality SSG has historically experienced strong revenues during the March, June
and September quarters primarily due to volume generated by spring and summer
sports, favorable outdoor weather conditions and school needs before summer
closings, and weak revenues during the December quarter. Working Capital The sporting goods segment is impacted by seasonality with its March
quarter being the highest sales period, and the quarter ending December being
its lowest sales period. This seasonality requires the sporting goods segment
to maintain higher amounts of inventory during the quarters ending March and
June, therefore increasing the working capital needs during these periods. Government Regulation Pursuant to the Tariff Act of 1930, as amended, the Trade Act of 1974 and
regulations promulgated there under, the United States government charges
tariff duties, excess charges, assessments and penalties on many imports.
These regulations are subject to constant change and revision by government
agencies and by action by the United States Trade Representative and may have
the effect of increasing the cost of goods purchased by us or limiting
quantities of goods available to us from our overseas suppliers. A number of
states have adopted statutes regulating the manner of determining the amount of
payments to independent service centers performing warranty service on products
such as those sold by us. Additional Federal legislation and regulations
regarding the importation of consumer electronics products, including the
products marketed by us, have been proposed from time-to-time and, if enacted
into law, could adversely affect our financial condition and results of
operations. Many of our products are subject to Federal regulations, among other laws,
which empowers the Consumer Product Safety Commission (the CPSC) to protect
consumers from hazardous sporting goods and other articles. The CPSC has the
authority to exclude from the market certain articles that are found to be
hazardous and can require a manufacturer to refund the purchase price of
products that present a substantial product hazard. CPSC determinations are
subject to court review. Similar laws exist in some states and cities in the
United States. Product Liability and Insurance Because of the nature of the products sold by us, particularly those
products sold by SSG, we are periodically subject to product liability claims
resulting from personal injuries. We may become involved in various lawsuits
incidental to our business. Additionally, significantly increased product
liability claims continue to be asserted successfully against manufacturers and
distributors of sports 15




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equipment throughout the United States resulting in general uncertainty as
to the nature and extent of manufacturers and distributors liability for
personal injuries. See Item 3  Legal Proceedings. In recent years, product liability insurance has become much more
expensive, more restrictive and more difficult to obtain. Accordingly, there
can be no assurance that our general product liability insurance will be
sufficient to cover any successful product liability claims made. In our
opinion, any ultimate liability arising out of currently pending product
liability claims will not have a material adverse effect on the financial
condition or results of operations. However, any claims substantially in
excess of the insurance coverage, or any substantial claim not covered by
insurance, could have a material adverse effect on our financial condition and
results of operations. Employees As of May 3, 2004, we had approximately 371 employees, of which 138 were
employed by Emerson, and 233 were employed by SSG. None of our employees are
represented by unions, and we believe our labor relations are good. Risk Factors You should carefully consider these risk factors in addition to our
financial statements, including the notes to such financial statements.
Additional risks that we do not yet know of or that we currently think are
immaterial may also impair our business operations. If any of the following
risks occur, our business, financial condition or operating results could be
adversely affected. In that case, the trading price of our common stock could
decline. Business Related Risks The loss, or significant reduction in business of any of our key customers,
including Wal-Mart and Target, could negatively affect our revenues and could
decrease our earnings. We are highly dependent upon sales of our consumer electronic products to
certain of our customers, including Wal-Mart and Target. During our fiscal
years ended March 31, 2004 and 2003, Wal-Mart stores accounted for
approximately 25% and 25%, respectively, Target stores accounted for
approximately 15% and 17%, respectively, and for fiscal 2003, K-Mart accounted
for approximately 12% of our net revenues. Although no other customer in
either of our operating segments accounted for greater than 10% of our
consolidated net revenues during these periods, other customers may account for
more than 10% of our consolidated net revenues in future periods. All
purchases of our products by customers in both of our operating segments are
made through purchase orders and we do not have any long-term contracts with
any of our customers. The loss of Wal-Mart or Target, or any of our other
customers to which we sell a significant amount of our products or any
significant portion of orders from Wal-Mart or Target, or such other customers
or any material adverse change in the financial condition of such customers
could negatively affect our revenues and decrease our earnings. The failure to maintain our relationships with our licensees and distributors
or the failure to obtain new licensees or distribution relationships could
negatively affect our revenues and decrease our earnings. 16




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We maintain license agreements that allow licensees to use our Emerson®
and H.H. Scott® trademarks for the manufacture and sale of consumer electronics
and other products. In addition, we maintain distribution agreements for the
distribution of our consumer electronics products into defined geographic
areas. Although we have entered into agreements with certain of our licensees
and distributors of consumer electronics products, most of which have a term of
three years or less and expire between November 2004 and December 2006, we
cannot assure that such agreements will be renewed when the terms of such
agreements expire, or that our relationships with our licensees or distributors
will be maintained on satisfactory terms or at all. The failure to maintain
our relationships with Funai and our other licensees and distributors, the
failure to obtain new licensees or distribution relationships or the failure by
our licensees to protect the integrity and reputation of our Emerson® and H.H.
Scott® trademarks could negatively affect our licensing revenues and decrease
our earnings. Our sporting goods business licenses certain well-known names and
trademarks, including MacGregor® that expires in 2040, and allows us to
manufacture, promote, sell and distribute specified products and equipment.
Although the MacGregor® agreement expires in 2040, we cannot be assured that
our relationship with MacGregor® will be maintained on satisfactory terms or at
all. The non-renewal or termination of one or more of our material licenses in
our sporting goods business could materially reduce our ability to sell
products bearing such names and trademarks and decrease our earnings. Our revenues and earnings could be negatively affected if we cannot anticipate
market trends or enhance existing products or achieve market acceptance of new
products. Our success is dependent on our ability to successfully anticipate and
respond to changing consumer demands and trends in a timely manner. In
addition, to increase our penetration of current markets and gain footholds in
new markets for our products, we must maintain existing products and integrate
them with new products. We may not be successful in developing, marketing and
releasing new products that respond to technological developments or changing
customer needs and preferences. We may also experience difficulties that could
delay or prevent the successful development, introduction and sale of these new
products. In addition, these new products may not adequately meet the
requirements of the marketplace and may not achieve any significant degree of
market acceptance. If release dates of any future products or enhancements to
our products are delayed, or if these products or enhancements fail to achieve
market acceptance when released, our sales volume may decline and earnings
could be negatively affected. In addition, new products or enhancements by our
competitors may cause customers to defer or forgo purchases of our products,
which could also negatively affect our revenues and earnings. We depend on a limited number of suppliers for our components and raw materials
and any interruption in the availability of these components and raw materials
used in our products could reduce our revenues and adversely affect our
relationship with our customers. We rely on a limited number of suppliers, most of which are located
outside of the United States, for the components and raw materials used in our
consumer electronics and sporting good products. Although there are many
suppliers for each of our component parts and raw materials, we are dependent
on a limited number of suppliers for many of the significant components and raw
materials. This reliance involves a number of significant risks, including: 17




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
    
    lack of availability of materials and interruptions in
delivery of components and raw materials from our suppliers;
    
    manufacturing delays caused by such lack of availability or
interruptions in delivery;  
    
    fluctuations in the quality and the price of components and
raw materials, in particular due to the petroleum price impact on
such materials; and  
    
    risks related to foreign operations. We do not have any long-term or exclusive purchase commitments with any of our
suppliers. StarLite, Avatar Mfg., GMT Industries, Daewoo and Lasco Industries
are our largest suppliers of components for our consumer electronics products,
each of which accounted for more than 10% of our purchases of components for
our consumer electronics products for our latest fiscal year. Our failure to
maintain existing relationships with our suppliers or to establish new
relationships in the future could also negatively affect our ability to obtain
our components and raw materials used in our products in a timely manner. If
we are unable to obtain ample supply of product from our existing suppliers or
alternative sources of supply, we may be unable to satisfy our customers
orders which could reduce our revenues and adversely affect our relationship
with our customers. The operating results of our sporting good segment may continue to be affected
by budgetary restrictions of schools and government agencies. A substantial portion of our sporting goods product revenues are generated
through sales to the institutional market, including:  
    
    public and private schools;  
    
    colleges and universities;  
    
    military academies;  
    
    municipal and governmental agencies;  
    
    military and correctional facilities;  
    
    youth sports leagues. As a result, our sporting goods business is substantially dependent on the
budgetary allowances of schools as well as local, state and federal government
agencies. Restrictions or reductions to the budgeted spending of these
entities could reduce the amount of goods purchased from us and could
materially adversely affect our revenues and earnings. If our original equipment manufacturers are unable to deliver our products in
the required amounts and in a timely fashion, we could experience delays or
reductions in shipments to our customers which could reduce our revenues and
adversely affect our relationship with our customers. 18




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All of our consumer electronic products and approximately 20.0% of our
sporting good products are manufactured in accordance with our specifications
by original equipment manufacturers located in:  
    
    South Korea;  
    
    China;  
    
    Malaysia; and  
    
    Thailand. If we are unable to obtain our products from the original equipment
manufacturers located in these countries in the required quantities and quality
and in a timely fashion, we could experience delays or reductions in product
shipments to our customers which could negatively affect our ability to meet
the requirements of our customers, as well as our relationships with our
customers. Unanticipated disruptions in our operations or slowdowns by our suppliers,
manufacturers and shipping companies could adversely affect our ability to
deliver our products and service our customers which could reduce our revenues
and adversely affect our relationship with our customers. Our ability to provide high quality customer service, process and fulfill
orders and manage inventory depends on:  
    
    the efficient and uninterrupted operation of our call center,
distribution center and manufacturing facilities related to our
sporting goods segment; and  
    
    the timely and uninterrupted performance of third party
manufacturers and suppliers, shipping companies, and dock workers
relating to both our consumer electronics and sporting goods
segments. Any material disruption or slowdown in the operation of our call center,
distribution center, manufacturing facilities or management information
systems, or comparable disruptions or slowdowns suffered by our principal
manufacturers, suppliers and shippers could cause delays in our ability to
receive, process and fulfill customer orders and may cause orders to be
canceled, lost or delivered late, goods to be returned or receipt of goods to
be refused. Our sporting goods segment ships approximately 70% of its products
using United Parcel Service. A strike by UPS or any of our other major
carriers or any other disruption in our ability or our customer's ability to
receive our products as a result of a strike or otherwise could materially
adversely affect our results of operations as a result of our failure to
deliver our products in a timely manner and using other more expensive freight
carriers. 19




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The operations of our sporting goods segment are subject to high fixed costs,
which could adversely affect our earnings. The operations and maintenance of our call center, distribution center,
manufacturing facilities and management information systems related to our
sporting goods segment involve substantial fixed costs. Paper and postage are
significant components of our sporting goods segment operating costs. Catalog
mailings entail substantial paper, postage, and costs associated with catalog
development, each of which is subject to price fluctuations. If net revenues
are substantially below expectations, these fixed costs may not be
proportionately reduced and could materially adversely affect the earnings of
our sporting goods segment and, in turn, our consolidated earnings. Our revenues and earnings could be adversely affected by foreign regulations
and changes in the political, public health and economic conditions in the
foreign countries in which we operate our business. We derive a significant portion of our revenues from sales of products
manufactured by third parties located primarily in China, South Korea, Malaysia
and Thailand. In addition, third parties located in these and other countries
located in the same region produce and supply many of the components and raw
materials used in our products. Conducting an international business
inherently involves a number of difficulties and risks that could adversely
affect our ability to generate revenues and could subject us to increased
costs. The main factors that may adversely affect our revenues and increase
our costs are:  
    
    currency fluctuations which could cause an increase in the
price of the components and raw materials used in our products and a
decrease in our profits;
    
    more stringent export restrictions in the countries in which
we operate which could adversely affect our ability to deliver our
products to our customers;
    
    tariffs and other trade barriers which could make it more
expensive for us to obtain and deliver our products to our
customers;
    
    political instability and economic downturns in these
countries which could adversely affect our ability to obtain our
products from our manufacturers or deliver our products to our
customers in a timely fashion; and
    
    seasonal reductions in business activity in these countries
during the summer months which could adversely affect our sales. In addition, the prior outbreak of severe acute respiratory syndrome, or SARS,
which had particular impact in China, Hong Kong and Singapore, had a negative
effect on our consumer electronics operations. Our operations, including our
ability to obtain our products in a timely fashion, could be impacted again,
including disrupting the operation of our suppliers, manufacturers and shipping
companies, each of which could adversely affect our earnings, should SARS
reoccur in the future. We have experienced, and may in the future experience, many of these risks
and cannot predict the impact of any particular risk on our operations.
However, any of these factors may materially adversely affect our revenues
and/or increase our operating expenses. 20




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The seasonality of our business, as well as changes in consumer spending and
economic conditions, may cause our quarterly operating results to fluctuate and
cause our stock price to decline. Our net revenue and operating results may vary significantly from quarter
to quarter. The main factors that may cause these fluctuations are:  
    
    seasonal
variations in operating results;  
    
    variations
in the sales of our products to our significant customers;  
    
    increases in returned consumer electronics products in the
March quarter which follows our peak September and December selling
quarters;  
    
    variations
in manufacturing and supplier relationships;  
    
    if we are unable to correctly anticipate and provide for
inventory requirements from quarter to quarter, we may not have
sufficient inventory to deliver our products to our customers in a
timely fashion or we may have excess inventory that we are unable to
sell;  
    
    the
discretionary nature of our customers demands and spending
patterns;  
    
    changes in
market and economic conditions; and  
    

competition. In addition, our quarterly operating results could be materially adversely
affected by political instability, war, acts of terrorism or other disasters. Sales of our consumer electronics products are somewhat seasonal due to
consumer spending patterns, which tend to result in significantly stronger
sales in our September and December fiscal quarters, especially as a result of
the holiday season. Our sporting goods segment is also somewhat seasonal due
to stronger demand for its products during the March fiscal quarter due to
volume generated by spring and summer sports, favorable outdoor weather
conditions and school needs before summer closings and weaker revenues during
the December fiscal quarter. These patterns will probably not change
significantly in the future. Although we believe that the seasonality of our
business is based primarily on the timing of consumer demand for our products,
fluctuations in operating results can also result from other factors affecting
us and our competitors, including new product developments or introductions,
availability of products for resale, competitive pricing pressures, changes in
product mix and pricing and product reviews and other media coverage. Due to
the seasonality of our business, our results for interim periods are not
necessarily indicative of our results for the year. Our sales and earnings can also be affected by changes in the general
economy since purchases of consumer electronics and sporting goods are
generally discretionary for consumers and subject to budgetary constraints by
schools and government agencies. Our success is influenced by a number of
economic factors affecting disposable consumer income, such as employment
levels, 21




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business conditions, budgetary restrictions of schools and government
agencies, interest rates and taxation rates. Adverse changes in these economic
factors, among others, may restrict consumer spending or increase budgetary
restrictions at schools and government agencies, thereby negatively affecting
our sales and profitability. As a result of these and other factors, revenues for any quarter are
subject to significant variation, which may adversely affect the market price
for our common stock. If our third party sales representatives fail to adequately promote, market and
sell our consumer electronic products, our revenues could significantly
decrease. A portion of our consumer electronic product sales are made through third
party sales representative organizations, whose members are not our employees.
Our level of sales depends on the effectiveness of these organizations, as well
as the effectiveness of our own employees. Some of these third party
representatives may sell, with our permission, competitive products
manufactured by other third parties as well as our products. During our fiscal
years ended March 31, 2004 and 2003, these organizations were responsible for
approximately 49% and 59%, respectively, of our net consumer electronics
revenues during such periods. In addition, two of these representative
organizations were responsible for a significant portion of these revenues. If
any of our third party sales representative organizations engaged by us,
especially our two largest, fails adequately to promote, market and sell our
consumer electronics products, our revenues could be significantly decreased
until a replacement organization or distributor could be retained by us.
Finding replacement organizations and distributors could be a time consuming
process during which our revenues could be negatively impacted. The ownership of our common stock by Geoffrey P. Jurick, our Chairman, Chief
Executive Officer and President, substantially reduces the influence of our
other stockholders. Geoffrey Jurick, our Chairman, Chief Executive Officer and President, owns
approximately 36.0% of our outstanding common stock. As a result, Geoffrey
Jurick currently has the ability to influence significantly the actions that
require stockholder approval, including:  
    
    the election of our directors; and  
    
    the approval of mergers, sales of assets or other corporate
transactions or matters submitted for stockholder approval. As a result, our other stockholders may have little or no influence over
matters submitted for stockholder approval. In addition, the selling
stockholders influence could preclude any unsolicited acquisition of us and
consequently materially adversely affect the price of our common stock.
However, in March 2003, a judgment was entered against Mr. Jurick in favor of
Petra Stelling in the amount of approximately $13.9 million, plus interest, and
in connection with such judgment 4,188,975 shares of our common stock, or 15.7%
of our outstanding common stock, registered in the name of Mr. Jurick were
placed in escrow with Mr. Juricks counsel for the benefit of the parties. 22




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We may seek to make acquisitions that prove unsuccessful or strain or divert
our managements attention and our capital resources. We may seek to grow our business through acquisitions of related
businesses. Such acquisitions present risks that could materially adversely
affect our earnings, including:  
    
    the
diversion of our managements attention from our everyday
business activities;  
    
    the assimilation of the operations and personnel of the acquired business;  
    
    the incurring of additional expenses related to such
acquisitions, whether or not such acquisitions are consummated;  
    
    the contingent and latent risks associated with the past
operations of, and other unanticipated problems arising in, the
acquired business; and  
    
    the need to expand management, administration and operational
systems. If we make such acquisitions, we cannot predict whether:  
    
    we will be able to successfully integrate the operations of
any new businesses into our business;  
    
    we will realize any anticipated benefits of completed acquisitions; or  
    
    there will be substantial unanticipated costs associated with acquisitions. In addition, future acquisitions by us may result in:  
    
    potentially dilutive issuances of our equity securities;  
    
    the incurrence of additional debt; and  
    
    the recognition of significant charges for depreciation and
amortization related to goodwill and other intangible assets. We continuously evaluate potential acquisitions of related businesses.
However, competition for such potential acquisitions is intense and we have not
reached any agreement or arrangement with respect to any particular acquisition
and we may not be able to complete any acquisitions on favorable terms or at
all. 23




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We are subject to intense competition in the industries in which we operate
which could cause material reductions in the selling price of our products or
losses of our market share. The consumer electronics industry and the institutional market for
sporting goods and leisure products are highly competitive, especially with
respect to pricing and the introduction of new products and features. Our
consumer electronics segment competes in the low to medium-priced sector of the
consumer electronics market and competes primarily on the basis of:  
    
    reliability;  
    
    quality;  
    
    price;  
    
    design;  
    
    consumer acceptance of the Emerson® trademark; and  
    
    quality service and support to retailers and our customers. Our sporting goods segment competes in the institutional sporting goods market
principally with local sporting goods dealers, retail sporting goods stores,
other direct mail catalog marketers and providers of sporting goods on the
Internet. Our sporting goods segment competes principally on the basis of:  
    
    brand;  
    
    price;  
    
    product availability; and  
    
    customer service. In recent years we and many of our competitors have regularly lowered prices,
and we expect these pricing pressures to continue. If these pricing pressures
are not mitigated by increases in volume, cost reductions or changes in product
mix, our revenues and profits could be substantially reduced. As compared to
us, many of our competitors have:  
    
    significantly longer operating histories;  
    
    significantly greater managerial, financial, marketing,
technical and other competitive resources; and  
    
    greater name recognition. As a result, our competitors may be able to:  
    
    adapt more quickly to new or emerging technologies and
changes in customer requirements;  
    
    devote greater resources to the promotion and sale of their
products and services; and
    
    respond more effectively to pricing pressures. 24




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These factors could materially adversely affect our operations and financial
condition. In addition, competition could increase if:  
    
    new companies enter the market;  
    
    existing competitors expand their product mix; or  
    
    we expand into new markets. An increase in competition could result in material price reductions or loss of
our market share. Our business could be adversely affected if we cannot protect our intellectual
property rights or if we infringe on the intellectual property rights of
others. Our ability to compete effectively will depend on our ability to maintain
and protect our proprietary rights. We own the Emerson® trademark, which is
materially important to our business, as well as our other trademarks and
proprietary rights that are used for certain of our home entertainment and
consumer electronics products. In addition, we license names and trademarks in
connection with our sporting goods business. Our trademarks are registered
throughout the world, including the United States, Canada, Mexico, France,
Spain, Germany and the United Kingdom. However, third parties may seek to
challenge, invalidate, circumvent or render unenforceable any proprietary
rights owned by or licensed to us. In addition, in the event third party
licensees fail to protect the integrity of our trademarks, the value of these
marks could be adversely affected. The laws of some foreign countries in which we operate may not protect our
proprietary rights to the same extent as do laws in the United States. The
protections afforded by the laws of such countries may not be adequate to
protect our intellectual property rights. Our inability to protect our
proprietary rights could materially adversely affect the license of our
tradenames and trademarks to third parties as well as our ability to sell our
products. Litigation may be necessary to:  
    
    enforce our intellectual property rights;  
    
    protect our trade secrets; and  
    
    determine the scope and validity of such intellectual property rights. Any such litigation, whether or not successful, could result in substantial
costs and diversion of resources and managements attention from the operation
of our business. We may receive notice of claims of infringement of other parties
proprietary rights. Such actions could result in litigation and we could incur
significant costs and diversion of resources in defending such claims. The
party making such claims could secure a judgment awarding substantial damages,
as well as injunctive or other equitable relief. Such relief could effectively
block our ability 25




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to make, use, sell, distribute or market our products and services in such
jurisdiction. We may also be required to seek licenses to such intellectual
property. We cannot predict, however, whether such licenses would be available
or, if available, that such licenses could be obtained on terms that are
commercially reasonable and acceptable to us. The failure to obtain the
necessary licenses or other rights could delay or preclude the sale,
manufacture or distribution of our products and could result in increased costs
to us. We could be exposed to product liability or other claims for which our product
liability or other insurance may be inadequate. A failure of any of the products marketed by us, particularly those
products sold by our sporting goods segment, may subject us to the risk of
product liability claims and litigation arising from injuries allegedly caused
by the improper functioning or design of our products. Although we currently
maintain product liability insurance in amounts which we consider adequate, we
cannot assure that:  
    
    our insurance will provide adequate coverage against potential liabilities;  
    
    adequate product liability insurance will continue to be available in the future; or  
    
    our insurance can be maintained on acceptable terms. We and certain of our officers and directors, are party to a class action
lawsuit and we cannot assure the outcome of such litigation. Although we
maintain liability insurance in amounts that we consider adequate, we cannot
assure that such policies will provide adequate coverage against potential
liabilities. To the extent product liability or other litigation losses are
beyond the limits or scope of our insurance coverage, our expenses could
materially increase. See Item 3  Legal Proceedings. The inability to use our tax net operating losses could result in a charge to
earnings and could require us to pay higher taxes. Both Emerson and SSG have substantial tax net operating losses available
to reduce taxable income for federal and state income tax purposes. A portion
of the benefit associated with the tax net operating losses has been recognized
as a deferred tax asset in our financial statements and could be used to reduce
our tax liability in future profitable periods. We believe these net deferred
tax assets will be realized through tax planning strategies available in future
periods and future profitable operating results. Although realization is not
assured at either Emerson or SSG, we believe it is more likely than not that
all of the remaining net deferred tax assets will be realized. The amount of
the deferred tax asset considered realizable, however, could be reduced or
eliminated in the near term if certain tax planning strategies are not
successfully executed, or estimates of future taxable income during the
carryforward period is reduced. In addition, transactions consummated by us or Geoffrey Jurick, that
together with other transactions consummated by Emerson, SSG or Mr. Jurick or
that involve the common stock of Emerson or SSG that are deemed collectively to
result in a change of control of Emerson or SSG, 26




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respectively, under the tax code could limit the use of our tax net
operating losses. In the event that either Emerson or SSG is unable to utilize
its tax net operating losses in a reasonable time frame, it would be required
to adjust its deferred tax asset on its financial statements which would result
in a charge to earnings. Additionally, should the utilization of tax net
operating losses be limited, we would be required to pay a greater amount of
taxes in future periods. Our existing indebtedness may adversely affect our ability to obtain additional
funds and may increase our vulnerability to economic or business downturns. From time to time we incur debt in connection with our operations. As a
result, we may be subject to the risks associated with indebtedness, including:  
    
    we must dedicate a portion of our cash flows from operations
to pay debt service costs and, as a result, we have less funds
available for operations and other purposes;  
    
    it may be more difficult and expensive to obtain additional
funds through financings, if available at all;  
    
    we are more vulnerable to economic downturns and fluctuations
in interest rates, less able to withstand competitive pressures and
less flexible in reacting to changes in our industry and general
economic conditions; and  
    
    if we default under any of our existing credit facilities or
if our creditors demand payment of a portion or all of our
indebtedness, we may not have sufficient funds to make such
payments. We have pledged substantially all of our assets to secure our borrowings under
our credit facilities and are subject to covenants that may restrict our
ability to operate our business. Our indebtedness under our credit facilities are secured by substantially
all of our assets. If we default under the indebtedness secured by our assets,
those assets would be available to the secured creditor to satisfy our
obligations to the secured creditor. In addition, our credit facilities impose
certain restrictive covenants, including financial, ownership, operational and
net worth covenants. Failure to satisfy any of these covenants could result in
all or any of the following:  
    
    acceleration of the payment of our outstanding indebtedness;  
    
    our inability to borrow additional amounts under our existing
financing arrangements; and  
    
    our inability to secure financing on favorable terms or at
all from alternative sources. Any of these consequences could significantly reduce the amount of cash and
financing available to us which in turn would adversely affect our ability to
operate our business, including acquiring our products from our manufacturers
and distributing our products to our customers. 27




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Market Related Risks The market price of our common stock has experienced significant price and
volume fluctuations from time to time. The market price for our common stock and for securities of similar
companies have from time to time experienced significant price and volume
fluctuations. Factors which may affect our market price include:  
    
    market conditions in the industries in which we operate;  
    
    competition;  
    
    sales or the possibility of sales of our common stock;  
    
    our results of operations and financial condition; and  
    
    general economic conditions. Furthermore, the stock market has experienced significant price and volume
fluctuations unrelated to the operating performance of particular companies.
These market fluctuations may also adversely affect the market price of our
common stock. Our organizational documents and Delaware law may make it harder for us to be
acquired without the consent and cooperation of our board of directors and
management. Several provisions of our organizational documents and Delaware law may deter
or prevent a takeover attempt, including a takeover attempt in which the
potential purchaser offers to pay a per share price greater than the current
market price of our common stock. Under the terms of our certificate of
incorporation, our board of directors has the authority, without further action
by the stockholders, to issue shares of preferred stock in one or more series
and to fix the rights, preferences, privileges and restrictions thereof. The
ability to issue shares of preferred stock could tend to discourage takeover or
acquisition proposals not supported by our current board of directors. Forward-Looking Information This report contains various forward-looking statements made pursuant to
the safe harbor provisions of the Private Securities Litigation Reform Act of
1995 (the Reform Act) and information that is based on managements beliefs
as well as assumptions made by and information currently available to
management. Although we believe that the expectations reflected in such
forward-looking statements are reasonable, we can give no assurance that such
expectations will prove to be correct. When used in this report, the words
anticipate, believe, estimate, expect, predict, project, and
similar expressions are intended to identify forward-looking statements. We
cannot guarantee the accuracy of the forward-looking statements, and you should
be aware that our actual results could differ materially from those contained
in the forward-looking statements due to a number of factors, including the
statements 28




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##### Table of Contents



under Risk Factors set forth above and Critical Accounting Policies set
forth in Item 7 - Managements Discussion and Analysis of Financial Condition
and Results of Operations. Due to these uncertainties and risks, readers are cautioned not to place
undue reliance on these forward-looking statements, which speak only as of the
date of this report. 
 Item 2. PROPERTIES The following table sets forth the material properties owned or leased by
us: ApproximateSquare
    
    
    
    Lease ExpiresFacility Purpose
    
    Footage
    
    Location
    
    or is OwnedConsumer electronics segment:Corporate headquarters
    
    
    22,000
    
    
    Parsippany, NJ
    
    October 2008Hong Kong office
    
    
    10,000
    
    
    Hong Kong, China
    
    July 2005Macao office
    
    
    2,000
    
    
    Macao, China
    
    OwnedSporting goods segment:Manufacturing and corporate
headquarters
    
    
    135,000
    
    
    Farmers Branch, TX
    
    December 2007Warehouse and fulfillment
processing
    
    
    181,000
    
    
    Farmers Branch, TX
    
    December 2007Warehouse
    
    
    31,000
    
    
    Farmers Branch, TX
    
    December 2007Manufacturing
    
    
    35,000
    
    
    Anniston, AL
    
    OwnedManufacturing
    
    
    45,000
    
    
    Anniston, AL
    
    Owned
 Emerson also utilizes public warehouse space, evidenced by contracts with
terms typically of one year. Public warehouse expenses for Emerson varies
based on a percentage of sold products shipped from the location. In addition,
Emerson rents from SSG on a month to month basis approximately 75,000 sq. ft of
warehousing space. We believe that the properties used for our operations are in satisfactory
condition and adequate for our present and anticipated future operations. In
addition to the facilities listed above, SSG leases space in various locations,
primarily for use as sales offices, which lease terms range from month to month
to three years and are not material to us. 29




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##### Table of Contents



Item 3. LEGAL PROCEEDINGS Putative Class Actions Between September 4, 2003 and October 30, 2003, several putative class
action lawsuits were filed in the United States District Court for the District
of New Jersey against us and Mssrs. Geoffrey Jurick, Kenneth Corby and John
Raab (the Individual Defendants) on behalf of purchasers of our publicly
traded securities who bought shares between January 29, 2003 and August 12,
2003 (the Class Period.) On December 17, 2003, the Court entered a Joint
Stipulation and Order consolidating these putative class actions under the
caption In Re Emerson Radio Corp. Securities Litigation, 03cv4201 (JLL) (the
Consolidated Action.) Further to that Stipulation and Order, lead plaintiff
was appointed and co-lead counsel and co-liaison counsel were approved by the
Court in the Consolidated Action. Consistent with the Stipulation and Order,
the plaintiffs filed an Amended Consolidated Complaint (the Amended
Complaint) that, among other things, added Jerome Farnum, one of our
directors, as a defendant in the litigation. Generally, the Amended Complaint alleges that we and the Individual
Defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of
1934, and Rule 10b-5 promulgated there under, by (i) issuing certain positive
statements during the Class Period regarding our ability to replace lost
revenues attributable to our Hello Kitty® license and (ii) omitting to disclose
that we suffered allegedly soured relationships with our largest retail
customers. The Amended Complaint further alleges that these statements were
materially false and misleading when made because we allegedly misrepresented
and omitted certain adverse facts which then existed and disclosure of which
was necessary to make the statements not false and misleading. We, and the
Individual Defendants intend to defend the lawsuit vigorously. Other Matters We are a party to various other litigation matters, in most cases
involving ordinary and routine claims incidental to our business. We cannot
estimate with certainty our ultimate legal and financial liability with respect
to such pending litigation matters. However, we believe, based on our
examination of such matters, that our ultimate liability will not have a
material adverse effect on our financial position, results or operations or
cash flows. 
 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth
quarter. 30




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PART II 
 Item 5. MARKET FOR
REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
             ISSER REPURCHASES OF EQUITY SECURITIES (a) Market Information Our common stock has traded on the American Stock Exchange under the
symbol MSN since December 22, 1994. The following table sets forth the range
of high and low sales prices for our common stock as reported by the American
Stock Exchange during the last two fiscal years. Fiscal 2004
    
    Fiscal 2003High
    
    Low
    
    High
    
    LowFirst Quarter
    
    $
    7.88
    
    
    $
    5.95
    
    
    $
    1.95
    
    
    $
    1.05Second Quarter
    
    
    7.80
    
    
    
    2.47
    
    
    
    4.39
    
    
    
    1.45Third Quarter
    
    
    4.28
    
    
    
    3.15
    
    
    
    5.89
    
    
    
    2.22Fourth Quarter
    
    
    4.05
    
    
    
    3.27
    
    
    
    7.94
    
    
    
    4.87
 There is no established trading market for our Series A convertible
preferred stock, whose conversion feature expired as of March 31, 2002. (b) Holders At May 19, 2004, there were approximately 367 stockholders of record of
our common stock. We believe that the number of beneficial owners is
substantially greater than the number of record holders, because a large
portion of our common stock is held of record in broker street names. (c) Dividends Our policy has been to retain all available earnings, if any, for the
development and growth of our business. We have not paid and do not intend to
pay cash dividends on our common stock. In addition, our credit facility
restricts our ability to pay cash dividends on our common stock. (d) Unregistered Securities None 31




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##### Table of Contents



(e) Share Repurchases The following table summarizes our common stock share repurchase program
for the quarter ending March 31, 2004. The share repurchase program was
publicly announced in September 2003 to repurchase up to 2,000,000 shares of
Emersons outstanding common stock. Share repurchases are made from time to time in open market transactions in
such amounts as determined in the discretion of Emersons management within the
guidelines set forth by Rule 10b-18 under the Securities Exchange Act. Prior
to the March 31, 2004 quarter, we repurchased 785,325 shares under this
program. CumulativeNumber of
    
    Maximum Number ofTotal Number
    
    Average Price
    
    Shares Purchased
    
    Shares that May Yetof Shares
    
    Paid Per
    
    as Part of Publicly
    
    Be PurchasedPurchased
    
    Share
    
    Announced Programs
    
    Under the ProgramsJanuary 01, 2004
through
January 31, 2004
    
    
    232,700
    
    
    $
    3.80
    
    
    
    1,018,025
    
    
    
    981,975February 01, 2004
through
February 29, 2004
    
    
    21,000
    
    
    $
    3.39
    
    
    
    1,039,025
    
    
    
    960,975March 01, 2004
through
March 31, 2004
    
    
    72,600
    
    
    $
    3.56
    
    
    
    1,111,625
    
    
    
    888,375TOTAL
    
    
    326,300
    
    
    $
    3.72
 32




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##### Table of Contents



Item 6. SELECTED CONSOLIDATED FINANCIAL DATA The following table sets forth our selected consolidated financial data
for the five years ended March 31, 2004. For the year ended March 31, 2000, we
changed our financial reporting year to a 52/53 week year ending on the Friday
closest to March 31. Beginning in fiscal 2001, we changed our financial
reporting year to end on March 31. The selected consolidated financial data
should be read in conjunction with our Consolidated Financial Statements,
including the notes thereto, and Item 7 - Managements Discussion and Analysis
of Results of Operations and Financial Condition. March 31,
    
    March 31,
    
    March 31,
    
    March 31,
    
    March 31,2004
    
    2003
    
    2002
    
    2001 (1)
    
    2000(In thousands, except per share data)Summary of Operations:Net Revenues (2)
    
    $
    263,774
    
    
    $
    330,315
    
    
    $
    297,175
    
    
    $
    354,760
    
    
    $
    200,742Operating Income (loss)
    
    $
    (1,032
    )
    
    $
    18,685
    
    
    $
    9,535
    
    
    $
    13,980
    
    
    $
    5,334Income (loss) from continuing
operations
    
    $
    (3,735
    )
    
    $
    26,206
    
    
    $
    18,649
    
    
    $
    13,495
    
    
    $
    3,620Income (loss) from discontinued
operations,
net of tax
    
    $
    2,661
    
    
    $
    840
    
    
    $
    758
    
    
    $
    (842
    )
    
    
    Cumulative effect of change in
accounting
Principle
    
    
    
    
    
    $
    (5,546
    )
    
    
    
    
    
    
    
    
    
    
    Net income (loss)
    
    $
    (1,074
    )
    
    $
    21,500
    
    
    $
    19,407
    
    
    $
    12,653
    
    
    $
    3,620Balance Sheet Data at Period End:Total Assets
    
    $
    118,669
    
    
    $
    134,562
    
    
    $
    135,839
    
    
    $
    119,006
    
    
    $
    63,511Current Liabilities
    
    
    40,637
    
    
    
    48,668
    
    
    
    54,723
    
    
    
    45,330
    
    
    
    30,057Long-Term Debt
    
    
    15,027
    
    
    
    18,079
    
    
    
    29,046
    
    
    
    38,257
    
    
    
    20,891Shareholders Equity
    
    
    47,212
    
    
    
    51,237
    
    
    
    34,740
    
    
    
    15,131
    
    
    
    12,563Working Capital
    
    
    46,729
    
    
    
    49,101
    
    
    
    49,290
    
    
    
    39,497
    
    
    
    9,854Current Ratio
    
    
    2.2 to 1
    
    
    
    2.0 to 1
    
    
    
    1.9 to 1
    
    
    
    1.9 to 1
    
    
    
    1.3 to 1Per Common Share: (3)Basic net income (loss) per share:Income (loss) from continuing
operations
    
    $
    (.14
    )
    
    $
    .95
    
    
    $
    .60
    
    
    $
    .38
    
    
    $
    .07Discontinued operations
    
    
    .10
    
    
    
    .03
    
    
    
    .02
    
    
    
    (.02
    )
    
    
    Cumulative effect of change in
accounting principle
    
    
    
    
    
    
    (.20
    )
    
    
    
    
    
    
    
    
    
    
    $
    (.04
    )
    
    $
    .78
    
    
    $
    .62
    
    
    $
    .36
    
    
    $
    .07Diluted net income (loss) per share:Income (loss) from continuing
operations
    
    $
    (.14
    )
    
    $
    .91
    
    
    $
    .50
    
    
    $
    .35
    
    
    $
    .07Discontinued operations
    
    
    .10
    
    
    
    .03
    
    
    
    .02
    
    
    
    (.02
    )
    
    
    Cumulative effect of change in
accounting principle
    
    
    
    
    
    
    (.19
    )
    
    
    
    
    
    
    
    
    
    
    $
    (.04
    )
    
    $
    .75
    
    
    $
    .52
    
    
    $
    .33
    
    
    $
    .07Weighted Average Shares Outstanding:Basic
    
    
    27,227
    
    
    
    27,716
    
    
    
    31,298
    
    
    
    35,066
    
    
    
    47,632Diluted
    
    
    27,227
    
    
    
    28,640
    
    
    
    40,485
    
    
    
    38,569
    
    
    
    53,508
  (1)
    
    Prior to March 23, 2001, the investment in SSG was accounted for under
the equity method of accounting. On March 23, 2001, a majority interest
in SSG was reached and required this interest be accounted for as a
partial purchase to the extent of the change in control. The assets and
liabilities of SSG have been revalued to fair value to the extent of
Emersons interest in SSG. SSGs results of operations and the minority
interest related to those results have been included in our results of
operations as though it had been acquired at April 1, 2000. 33




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##### Table of Contents



(2)
    
    During fiscal 2004, SSG discontinued operations of certain team dealer
operations, and sold all of the capital stock of Athletic Training
Equipment Company, Inc. (ATEC). These transactions were classified as
discontinued operations, and accordingly reported separate from continuing
operations. The financial statements for fiscal 2000 through 2003 have
been reclassified to reflect such discontinued results.  (3)
    
    For fiscal 2002, 2001 and 2000, dilutive securities include 3,531,000,
3,066,000 and 5,876,000 shares, respectively, assuming conversion of
Series A preferred stock at a price equal to 80% of the weighted average
market value of a share of common stock, determined as of March 31, 2002,
2001, and 2000. For fiscal 2003, 2002 and 2001, dilutive securities also
include 924,000, 452,000 and 437,000 shares assuming conversion of
1,195,000, 1,645,000 and 1,658,000 options, respectively, and 100,000
warrants for fiscal 2003. For fiscal 2002, dilutive securities also included 5,204,000 shares assuming the
conversion of convertible debentures. Per common share data is based on the
net income or loss for the year and deduction of the amount of dividends
required to be paid to the holders of the preferred stock and the weighted
average of common stock outstanding during each fiscal year. Loss per share
in fiscal 2004 does not include potentially dilutive securities assumed
outstanding since the effects of such conversion would be anti-dilutive. 
 Item 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS During fiscal 2001, Emerson increased its ownership in SSG to 50.1%.
Accordingly, Emersons and SSGs results of operations are consolidated for
fiscal 2004, 2003 and 2002. See Item 8  Financial Statements and
Supplementary Data  Note 1 and Note 3 of Notes to the Consolidated Financial
Statements. Managements Discussion and Analysis of Results of Operation is presented
in three parts: consolidated operations, the consumer electronics segment and
the sporting goods segment. The following discussion of our operations and financial condition
should be read in conjunction with the Financial Statements and notes
thereto included elsewhere in this Annual Report on Form 10-K. Special Note: Certain statements set forth below constitute
forward-looking statements made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. See Item 1 - Business-
Forward-Looking Statements. In the following discussions, most percentages and dollar amounts have
been rounded to aid presentation. As a result, all figures are approximations. 34




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##### Table of Contents



Consolidated Operations: The following table sets forth, for the periods indicated, certain items
related to our consolidated statements of operations as a percentage of net
revenues for the fiscal years ended March 31. A detailed discussion of the
material changes in our operating results is set forth under our discussion of
our two operating segments: consumer electronics and sporting goods. 2004
    
    2003
    
    2002Net revenues (in thousands)
    
    $
    263,774
    
    
    $
    330,315
    
    
    $
    297,175100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales
    
    
    81.7
    %
    
    
    80.0
    %
    
    
    81.3
    %Other operating costs and expenses
    
    
    2.0
    %
    
    
    1.3
    %
    
    
    1.7
    %Selling, general and administrative
expenses
    
    
    15.9
    %
    
    
    13.0
    %
    
    
    13.8
    %Acquisition costs
    
    
    0.6
    %
    
    
    
    
    
    
    Stock based costs
    
    
    0.2
    %
    
    
    0.0
    %
    
    
    Operating income (loss)
    
    
    (0.4
    %)
    
    
    5.7
    %
    
    
    3.2
    %Litigation settlement, net
    
    
    
    
    
    
    
    
    
    
    0.9
    %Interest expense, net
    
    
    0.5
    %
    
    
    0.8
    %
    
    
    1.0
    %Minority interest in net loss of
consolidated subsidiary
    
    
    0.3
    %
    
    
    0.2
    %
    
    
    0.6
    %Income (loss) before income taxes and
cumulative effect of change in
accounting
principle
    
    
    (0.6
    %)
    
    
    5.1
    %
    
    
    3.7
    %Provision (benefit) for income taxes
    
    
    0.8
    %
    
    
    (2.8
    %)
    
    
    (2.6
    %)Income (loss) from continuing operations
    
    
    (1.4
    %)
    
    
    7.9
    %
    
    
    6.3
    %Income from discontinued operations,
net of
tax
    
    
    1.0
    %
    
    
    0.3
    %
    
    
    0.2
    %Cumulative effect of change in
accounting principle
    
    
    
    
    
    
    (1.7
    %)
    
    
    Net income (loss)
    
    
    (0.4
    %)
    
    
    6.5
    %
    
    
    6.5
    %
 Results of Consolidated Operations - Fiscal 2004 compared with Fiscal 2003 Net
Revenues  - Net revenues for fiscal 2004 decreased approximately $66.5
million, or 20.1%, to $263.8 million as compared to $330.3 million for fiscal
2003. The decrease in net revenues was primarily due to a decrease of
approximately $65.3 million, or 26.6%, in the consumer electronics segment, as
well as a decrease of $1.3 million, or 1.5%, in the sporting goods segment. Cost
of Sales  - Cost of sales, in absolute terms, decreased $48.6
million, or 18.4%, to $215.4 million for fiscal 2004 as compared to $264.0
million for fiscal 2003. This decrease was primarily due to a decrease of
$49.1 million, or a decrease of 24.2% in the consumer electronics segment,
partially offset by an increase of $474,000, or an increase of .8%, in the
sporting goods segment. As a percentage of consolidated net revenues, cost of
sales increased from 80.0% in fiscal 2003 to 81.7% in fiscal 2004. The
percentage increase in cost of sales was primarily the result of lower margins
in the consumer electronics segment for the current fiscal year. Other
Operating Costs and Expenses  - Other operating costs and expenses
are associated with the consumer electronics segment and include those
components as described in Note 1 of Notes to Consolidated Financial
Statements. As a result of increased activity in these areas, other  operating costs
increased $0.9 million, or 20.8%, from $4.3 million (1.3% of consolidated net
revenues) in fiscal 2003 to $5.3 million (2.0% of consolidated net revenues) in
fiscal 2004. 35




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##### Table of Contents



Selling,
General and Administrative Expenses (S,G&A)  -  In absolute
terms, S,G&A expenses decreased $1.2 million, or 2.7%, to $42.0 million (15.9%
of consolidated net revenues) in fiscal 2004 as compared to $43.2 million
(13.0% of consolidated net revenues) in fiscal 2003. This decrease in S,G&A
was primarily the result of a decrease of $1.5 million, or 8.5%, in the
consumer electronics segment, partially offset by an increase of $0.3 million,
or 1.2% in the sporting goods segment. As a percentage of consolidated net
revenues, S,G&A expenses increased to 15.9% for fiscal 2004 as compared to
13.0% for fiscal 2003, principally as a result of the decline in revenues. Acquisition Costs  Acquisition costs are associated with the consumer
electronics segment. Acquisition costs were $1.6 million (0.6% of consolidated
net revenues) for fiscal 2004, due to two unsuccessful acquisition attempts
during the year. There were no acquisition costs in fiscal 2003. Stock Based Costs  Stock based costs are associated with the consumer
electronics segment, which relate to the value of warrants issued in exchange
for consulting services. Stock based costs increased from $49,000 (less than
0.1% of consolidated net revenues) in fiscal 2003 to $511,000 (0.2% of
consolidated net revenues) in fiscal 2004. Interest
expense, net  - Interest expense decreased $1.2 million, or
46.2%, from $2.5 million (0.8% of consolidated net revenues) in fiscal 2003 to
$1.3 million (0.5% of consolidated net revenues) in fiscal 2004. The decrease
was primarily due to lower borrowing amounts and lower interest rates,
resulting in a decrease of $1.0 million, or 53.4%, in the consumer electronics
segment, as well as a decrease of $0.2 million, or a 23.4% decrease in the
sporting goods segment. Minority
Interest in Net Loss of Consolidated Subsidiary  - Minority
interest in net loss of consolidated subsidiary represents that portion of the
sporting goods segment loss for the fiscal year that relates to the ownership
of SSG by shareholders other than us. See Item 8  Financial Statements and
Supplementary Data - Note 1 of Notes to Consolidated Financial Statements. Provision (Benefit) For Income Taxes  The provision for income taxes in
absolute terms was $2.2 million in fiscal 2004 as compared to a tax benefit of
($9.3) million in fiscal 2003. The provision of $2.2 million in fiscal 2004
primarily represents the deferred tax charges associated with Emerson's profits
 in the United States. The tax benefit in fiscal 2003 was
primarily the result of a reduction in the valuation reserve in the consumer
electronics segment, previously established against the deferred tax assets
relating to the accounts receivable and inventory temporary differences, as
well as the recognition of managements estimation of net operating loss
carryforwards subject to limitations under IRC Section 382. See Item 8 
Financial Statements and Supplementary Data - Note 7 of Notes to Consolidated
Financial Statements. Income from Discontinued Operations, Net of Tax  Income from discontinued
operations, net of tax, is associated with the sporting goods segment. In
July, October and November 2003, SSG ceased operations of its Team Dealer
locations in Little Rock, Arkansas, Enid, Oklahoma, and Wichita, Kansas,
respectively. In addition, SSG sold all of the issued and outstanding capital
stock of ATEC. Income from discontinued operations increased $1.9 million to
$2.7 million (1.0 % of consolidated net revenues) in fiscal 2004 from $0.8
million (0.3% of 36




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##### Table of Contents



consolidated net revenues) in fiscal 2003. See Item 8  Financial Statements
and Supplementary Data  Note 17 of Notes to Consolidated Financial
Statements. Net Income (loss) - As a result of the foregoing factors, we had a net
loss of approximately $1.1 million (-0.4% of consolidated net revenues) for
fiscal 2004 as compared to net income of $21.5 million (6.5% of consolidated
net revenues) for fiscal 2003. Results of Consolidated Operations  Fiscal 2003 compared with Fiscal 2002 Net Revenues - Net revenues for fiscal 2003 increased $33.1 million, or
11.2%, to $330.3 million as compared to $297.2 million for fiscal 2002. The
increase in net revenues was primarily due to an increase of approximately
$32.7 million, or a 15.4% increase in the consumer electronics segment, as well
as an increase of approximately $427,000, or a 0.5% increase in the sporting
goods segment. Cost of Sales - Cost of sales, in absolute terms, increased $22.5 million,
or 9.3%, to $264.0 million (80.0% of consolidated net revenues) in fiscal 2003
as compared to $241.5 million (81.3% of consolidated net revenues) for fiscal
2002. The cost of sales change was primarily due to a change of $22.9 million
in the consumer electronics segment (12.7%), which was due to an increased
sales base, partially offset by a decrease of approximately $354,000, or .6%,
in the sporting goods segment. As a percentage of consolidated net revenues,
cost of sales decreased from 81.3% in fiscal 2002 to 80.0% in fiscal 2003. The
decrease in cost of sales was primarily the result of higher margins in the
consumer electronics segment in fiscal 2003. Other Operating Costs and Expenses  - Other operating costs and expenses
are associated with the consumer electronics segment. Other operating costs
decreased approximately $601,000, or 12.1%, from $4.9 million (1.7% of
consolidated net revenues) in fiscal 2002 to $4.3 million (1.3% of consolidated
net revenues) in fiscal 2003, primarily as a result of a decrease in costs
related to inventory servicing costs. Selling, General and Administrative Expenses (S,G&A)  -  S,G&A expenses
increased $2.0 million, or 4.9%, to $43.2 million (13.0% of consolidated net
revenues) in fiscal 2003 from $41.2 million (13.8% of consolidated net
revenues) in fiscal 2002. The increase in S,G&A in absolute terms was
primarily the result of an increase of $3.2 million, or 22.5%, in the consumer
electronics segment, partially offset by a decrease of $1.2 million, or 4.3%,
in the sporting goods segment. Stock Based Costs  Stock based costs are associated with the consumer
electronics segment, which relate to the cost of warrants issued in exchange
for consulting services. Stock based costs for fiscal 2003 were approximately
$49,000, (less than 0.1% of consolidated net revenues). There were no stock
based costs recorded in fiscal 2002. Litigation Settlement, net - Litigation settlement in fiscal 2002 was the
result of the consumer electronics segment settling litigation in the amount of
$2.9 million, net of legal costs with a former trademark licensee. 37




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Interest expense, net  Interest expense decreased approximately $630,000,
or 20.2%, from $3.1 million (1.0% of consolidated net revenues) in fiscal 2002
to $2.5 million (0.7% of consolidated net revenues) in fiscal 2003. The
decrease is primarily due to a decrease of approximately $527,000, or a
decrease of 21.8%, in the consumer electronics segment, as well as a decrease
of approximately $103,000, or a decrease of 14.7%, in the sporting goods
segment. The decreases in both segments were the result of lower borrowing
amounts and lower interest rates. Minority Interest in Net Loss of Consolidated Subsidiary  Minority
interest in net loss of consolidated subsidiary represents that portion of the
sporting goods segment loss for the fiscal year that was not included in the
consolidated statements of operations. See Item 8  Financial Statements and
Supplementary Data  Note 1 of Notes to Consolidated Financial Statements. Provision
(benefit) For Income Taxes  Benefit for income taxes in
absolute terms increased $1.7 million, or 22.3%, to ($9.3) million in fiscal
2003 as compared to ($7.6) million in fiscal 2002. The increase in the tax
benefit in fiscal 2003 was primarily the result of a reduction in a valuation
reserve in the consumer electronics segment, previously established against the
deferred tax assets relating to the accounts receivable and inventory temporary
differences, as well as the recognition of managements estimation of net
operating loss carryforwards subject to limitations under IRC Section 382. See
Item 8  Financial Statements and Supplementary Data  Note 7 of Notes to
Consolidated Financial Statements. Income
from Discontinued Operations, Net of Tax  Income from discontinued
operations, net of tax, are associated with the sporting goods segment. Income
from discontinued operations increased $82,000, or 10.8%, to $840,000 (0.3 % of
consolidated net revenues) in fiscal 2003 from $758,000 (0.2% of consolidated
net revenues) in fiscal 2002. See Item 8  Financial Statements and
Supplementary Data  Note 17 of Notes to Consolidated Financial Statements. Cumulative Effect of Change in Accounting Principle  On April 1, 2002, we
adopted Financial Accounting Standards Boards Statement No. 142, Goodwill and
Other Intangible Assets (SFAS 142). SFAS 142 requires that goodwill not be
amortized, but instead be tested for impairment at least annually by reporting
unit. Goodwill is required to be tested for impairment in a transitional test
upon adoption and then at least annually by reporting unit. As a result of our
impairment testing, we recorded a non-cash cumulative effect of accounting
change of approximately $5.5 million due to the impairment of all of the
goodwill attributed to the Companys sporting goods segment. See Item 8 
Financial Statements and Supplementary Data  Note 5 of Notes to Consolidated
Financial Statements. Net Income   As a result of the foregoing factors, we earned net income
of $21.5 million (6.5% of consolidated net revenues) for fiscal 2003 as
compared to $19.4 million (6.5% of consolidated net revenues) for fiscal 2002. 38




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Consumer Electronics Segment: The following table summarizes certain financial information relating to
the consumer electronics segment for the fiscal years ended March 31 (in
thousands): 2004
    
    2003
    
    2002Net revenues
    
    $
    179,952
    
    
    $
    245,216
    
    
    $
    212,503Cost of sales
    
    
    153,642
    
    
    
    202,699
    
    
    
    179,833Other operating costs
    
    
    5,254
    
    
    
    4,348
    
    
    
    4,949Selling, general & administrative
    
    
    15,899
    
    
    
    17,380
    
    
    
    14,190Acquisition costs
    
    
    1,553
    
    
    
    
    
    
    
    Stock based costs
    
    
    511
    
    
    
    49
    
    
    
    Operating income
    
    
    3,093
    
    
    
    20,740
    
    
    
    13,531Litigation settlement, net
    
    
    
    
    
    
    
    
    
    
    2,933Interest expense, net
    
    
    883
    
    
    
    1,893
    
    
    
    2,420Income before income taxes
    
    
    2,210
    
    
    
    18,847
    
    
    
    14,044Provision (benefit) for income taxes
    
    
    2,150
    
    
    
    (9,281
    )
    
    
    (7,591
    )Net income
    
    $
    60
    
    
    $
    28,128
    
    
    $
    21,635
 Results of Consumer Electronics Operations  Fiscal 2004 compared with Fiscal
2003 Net Revenues  Net revenues for fiscal 2004 decreased $65.3 million, or
26.6%, to $180.0 million as compared to $245.2 million for fiscal 2003.
Consumer electronics net revenues are comprised of Emerson branded product
sales, themed product sales and licensing revenues. Emerson branded product
sales are earned from the sale of products bearing the Emerson or HH Scott
brand name; themed product sales represent products sold bearing a certain
theme or character; and licensing revenues are derived from licensing Emerson
and HH Scott brand names to licensees for a fee. The decrease in net revenues
comprised of:  i)
    
    A decrease in Emerson branded products sales of $34.2
million, or a decrease of 17.7% to $158.4 million in fiscal 2004
compared to $192.6 million in fiscal 2003. These decreases were
associated with increased competition, decreased orders from our
primary customers and an overall slower economy.ii)
    
    Themed product sales decreased to $10.6 million in
fiscal 2004 compared to $42.2 million fiscal 2003, or a decrease
of $31.6 million (75.0%). These decreases were due to the
discontinuance of sales of NASCAR, Mary Kate and Ashley and Hello
Kitty themed products, and decreases in Girl Power themed
product, partially offset by the start up sales from Nickelodeon
themed products.iii)
    
    Licensing revenues increased to $11.0 million in fiscal
2004 compared to $10.4 million in fiscal 2003, primarily due to
increased sales volumes from our video licensing agreements. Cost of Sales  In absolute terms, cost of sales decreased $49.1 million,
or a 24.2% decrease, to $153.6 million in fiscal 2004 as compared to $202.7
million in fiscal 2003. Cost of sales, as a percentage of net revenues,
increased from 82.7% in fiscal 2003 to 85.4% in fiscal 39




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2004. The increase in cost of sales in relative terms was primarily due to
lower margins on product sales of traditionally higher margin themed products,
and lower margins on Emerson branded products, primarily attributable to
competitive market conditions. In absolute terms, cost of sales decreased by
$49.1 million due to a lower revenue base. Gross profit margins continue to be subject to competitive pressures
arising from pricing strategies associated with the price categories of the
consumer electronics market in which Emerson competes, accordingly, a change in
revenues does not directly correlate to a change in unit volume. Emersons
products are generally placed in the low-to-medium priced category of the
market, which has a tendency to be highly competitive. Other
Operating Costs and Expenses  Other operating costs and
expenses, include those components as
described in Note 1 of Notes to Consolidated Financial Statements. As
a result of increased activity in these areas, other operating costs
and expenses
as a percentage of net revenues, were 2.9% in fiscal 2004 as compared to 1.8%
in fiscal 2003. In absolute terms, other operating costs and expenses
increased $906,000, or 20.8%, to $5.3 million for fiscal 2004 as compared to
$4.3 million in fiscal 2003. Selling, General and Administrative Expenses (S,G&A)    S,G&A, as a
percentage of net revenues, were 8.8% in fiscal 2004 as compared to 7.1% in
fiscal 2003. S,G&A, in absolute terms, decreased $1.5 million, or an 8.5%
decrease to $15.9 million in fiscal 2004 as compared to $17.4 million for
fiscal 2003. The decrease in S,G&A in absolute terms between fiscal 2004 and
2003 was primarily due to a reduction in bad debt expense of approximately
$1.5 million. Acquisition
Costs  Acquisition costs were $1.6 million (0.9% of consumer
electronics segment net revenues) for fiscal 2004, due to two unsuccessful
acquisition attempts during the year. There were no acquisition costs in
fiscal 2003. Stock
Based Costs  Stock based costs, are the value of warrants issued in
exchange for consulting services. Stock based costs increased from $49,000
(less than 0.1% of consumer electronics net revenues) in fiscal 2003 to
$511,000 (0.3% of consumer electronics net revenues) in fiscal 2004. Interest Expense, net   Interest expense decreased $1.0 million, or
53.4%, from $1.9 million (0.8% of consumer electronics net revenues) in fiscal
2003 to $0.9 million (0.5% of net revenues) in fiscal 2004. The decrease was
attributable primarily to decreased borrowing amounts and lower interest rates. Provision (benefit) for Income Taxes  Emersons provision for income
taxes was $2.2 million for fiscal 2004 as compared to a benefit of $9.3
million for fiscal 2003. The provision of $2.2 million in fiscal 2004
represents deferred tax charges associated with Emerson's profits in the United States.
 The benefit for fiscal 2003 consisted primarily
of the reduction in the valuation reserve previously established against the
deferred tax assets relating to the accounts receivable and inventory temporary
differences, as well as the recognition of managements estimation of net
operating loss carryforwards subject to limitations under IRC Section 382,
which management believes it was likely to realize the benefit of such net
deferred tax assets. See Item 8  Financial Statements and Supplementary Data
 Note 7 of Notes to Consolidated Financial Statements. 40




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Net
Income - As a result of the foregoing factors, the consumer
electronics segment generated net income of $60,000 (less than 0.1% of net
revenues) in fiscal 2004 as compared to $28.1 million (11.5% of net revenues)
in fiscal 2003. Results of Consumer Electronics Operations  Fiscal 2003 compared with Fiscal
2002 Net
Revenues - Net revenues for fiscal 2003 increased $32.7 million, or
15.4%, to $245.2 million as compared to $212.5 million for fiscal 2002.
Consumer electronics net revenues are comprised of Emerson branded product
sales, themed product sales and licensing revenues. Emerson branded product
sales are earned from the sale of products bearing the Emerson or HH Scott
brand name; themed product sales represent products sold bearing a certain
theme or character; and licensing revenues are derived from licensing Emerson
and HH Scott brand names to licensees for a fee. The increase in net revenues
was primarily comprised of the following segments, partially offset by
corresponding increases in sales allowances:  i)
    
    An increase of $2.5 million, or 1.3%, in Emerson
branded products sales to $192.6 million in fiscal 2003 compared
to $190.1 million in fiscal 2002, primarily associated with
increased sales of audio and home theater equipment, offset by a
reduction in sales of microwaves.ii)
    
    Themed product sales increased $26.7 million to $42.2
million in fiscal 2003 compared to $15.5 million in fiscal 2002.
These increases were due to the increased sales of Hello Kitty
themed products, as well as the introduction of NASCAR, Girl
Power, and Mary Kate and Ashley themed products.iii)
    
    Licensing revenues increased $3.4 million to $10.4
million in fiscal 2003 compared to $7.0 million in fiscal 2002,
primarily due to increased sales volumes from our video licensing
agreements. Cost
of Sales - Cost of sales, as a percentage of consumer electronics net
revenues, decreased from 84.6% in fiscal 2002 to 82.7% in fiscal 2003. The
decrease in cost of sales was primarily due to higher margins on product sales
and an increase in licensing revenue. In absolute terms, cost of sales
increased $22.9 million, or 12.7%, in fiscal 2003 as compared to fiscal 2002. Other
Operating Costs and Expenses - Other operating costs and expenses,
as a percentage of net revenues, were 1.8% in fiscal 2003 as compared to 2.3%
in fiscal 2002. In absolute terms, other operating costs and expenses
decreased approximately $601,000, or 12.1%, to $4.3 million for fiscal 2003 as
compared to $4.9 million for fiscal 2002, primarily due to a decrease in
inventory servicing costs. Selling,
General and Administrative Expenses (S,G&A)  -  S,G&A increased
$3.2 million, or 22.5%, to $17.4 million in fiscal 2003 (7.1% of consumer
electronics net revenues) compared to $14.2 million (6.7% of consumer
electronics net revenues) in the prior fiscal year. The increase in S,G&A, in
absolute terms, between fiscal 2003 and 2002 was primarily due to increased
payroll related expenses of approximately $1.0 million, additional bad debt
expenses and increased bad debt reserves totaling approximately $1.5 million,
and additional freight out 41




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and sales commissions totaling approximately $1.1 million, partially offset by
various decreases in lesser accounts. Stock Based Costs  Stock based costs, relate to the cost of warrants
issued in exchange for consulting services. Stock based costs for fiscal 2003
were approximately $49,000, or less than 0.1% of consumer electronics net
revenues. There were no stock based costs recorded in fiscal 2002. Litigation
Settlement, net  - The gain from litigation settlement was the
result of a settled litigation in fiscal 2002, which was a one time event. Interest
Expense, net  - Interest expense decreased $527,000, or 21.8%,
from $2.4 million (1.1% of net revenues) in fiscal 2002 to $1.9 million (0.8%
of net revenues) in fiscal 2003. The decrease was attributable primarily to
decreased borrowing amounts and lower interest costs. Provision
(benefit) for Income Taxes  - Emersons benefit for income taxes
was $9.3 million (-3.8% of net revenues) for fiscal 2003 as compared to a
benefit of $7.7 million (-3.6% of net revenues) for fiscal 2002. The benefit
of $9.3 million consisted primarily of the reduction in the valuation reserve
previously established against the deferred tax assets relating to the accounts
receivable and inventory temporary differences, as well as the recognition of
managements estimation of net operating loss carryforwards subject to
limitations under IRC Section 382, which management believes it was likely to
realize the benefit of such net deferred tax assets. This is partially offset
by foreign and state taxes. See Item 8  Financial Statements and
Supplementary Data  Note 7 of Notes to Consolidated Financial Statements. Net
Income  - As a result of the foregoing factors, the consumer
electronics segment generated net income of $28.1 million (11.5% of net
revenues) in fiscal 2003 as compared to $21.6 million (10.2% of net revenues)
in fiscal 2002. Sporting Goods Segment: During fiscal 2004, SSG discontinued operations of certain team dealer
operations, and sold all of the capital stock of ATEC. These businesses have
been classified as discontinued operations, and, accordingly, their operating
results have been reported separate from continuing operations. The financial
statements for fiscal 2002 through 2004 have been reclassified to reflect such
discontinued results. The following table summarizes certain financial
information relating to the sporting goods segment for the fiscal years 2004,
2003, and 2002 (in thousands): 42




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2004
    
    2003
    
    2002Net revenues
    
    $
    83,822
    
    
    $
    85,099
    
    
    $
    84,672Cost of sales
    
    
    61,812
    
    
    
    61,338
    
    
    
    61,692Selling, general & administrative
Expenses
    
    
    26,135
    
    
    
    25,816
    
    
    
    26,976Operating loss
    
    
    (4,125
    )
    
    
    (2,055
    )
    
    
    (3,996
    )Interest expense, net
    
    
    459
    
    
    
    599
    
    
    
    702Loss before income taxes and
cumulative effect of change in
accounting principle
    
    
    (4,584
    )
    
    
    (2,654
    )
    
    
    (4,698
    )Benefit for income taxes
    
    
    
    
    
    
    (1
    )
    
    
    Loss from continuing operations
    
    
    (4,584
    )
    
    
    (2,653
    )
    
    
    (4,698
    )Income from discontinued operations,
net of tax
    
    
    2,661
    
    
    
    840
    
    
    
    758Cumulative effect of change in
accounting principle
    
    
    
    
    
    
    (7,442
    )
    
    
    Net loss
    
    $
    (1,923
    )
    
    $
    (9,255
    )
    
    $
    (3,940
    )
 Results of Sporting Goods
Operations - Fiscal 2004 compared with Fiscal 2003 Net
Revenues  - Net revenues for fiscal 2004 decreased approximately $1.3
million (1.5%) as compared to fiscal 2003. The decrease in net revenues was
primarily a result of increased competition, a decreased sales force, continued
restrictions in state, federal and school budgets and declining participation
and funding of youth sports organizations. Cost
of Sales  - Cost of sales, as a percentage of net revenues, increased
for fiscal 2004 to 73.7% as compared to 72.1% for 2003, or by $474,000. This
was due to a $542,000 write-down for obsolete and slow moving inventory, and to
a lesser extent, more aggressive pricing, increased freight and increased
importing costs. Selling,
General and Administrative Expenses (S,G&A)  - S,G&A expenses
for fiscal 2004 increased by $319,000 (1.2%) as compared to fiscal 2003. As a
percentage of net revenues, S,G&A increased to 31.2% in fiscal 2004 from 30.3%
in fiscal 2003. The increase in S,G& A in absolute and relative terms was
primarily due to an increase in professional service fees of approximately
$617,000, bankrupt freight carrier expenses of $296,000 and $181,000 in
uncollectable trade account receivable allowances partially offset by
decreases in payroll related expenses of $460,000, employee travel and
entertainment expense of $215,000 and $145,000 in facility expenses. Interest
Expense, net  - Interest expense, net decreased approximately
$140,000 (23.4%) in fiscal 2004 as compared to fiscal 2003. The decrease was
attributable primarily to decreased overall levels of borrowing. 43




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Benefit for Income Taxes  - The sporting goods segment has a net operating
loss carryforward included in net deferred tax assets that can be used to
offset future taxable income and can be carried forward for 15 to 20 years.
Realization of the deferred tax asset is dependent on generating sufficient
taxable income, either through operations or tax planning strategies, prior to
the expiration of loss carryforwards. The deferred tax asset associated with
the current year losses was offset with a full valuation allowance and
accordingly no benefit for income taxes was recorded in fiscal 2004. Discontinued Operations  Discontinued operations reflect net operating
losses related to our discontinued and sold team dealer operations and the net
income from and net gain on sale of our ATEC subsidiary, which occurred in
fiscal 2004. Net loss - As a result of the foregoing factors, a net loss of $1.9
million was reported for fiscal 2004 as compared to a net loss of $9.3 million
for fiscal 2003. Results of Sporting Goods Operations - Fiscal 2003 compared with Fiscal 2002 Net Revenues  - Net revenues for fiscal 2003 increased approximately
$427,000, or 0.5% as compared to fiscal 2002. Cost of Sales  - Cost of sales, as a percentage of net revenues, decreased
for fiscal 2003 to 72.1% as compared to 72.9% for 2002. In absolute terms,
cost of sales decreased in fiscal 2003 by $354,000 as compared to fiscal 2002
due to the consolidation of several of our plants, exiting certain unprofitable
product lines and improved product sourcing. Selling, General and Administrative Expenses (S,G&A)  - S,G&A expenses
for fiscal 2003 decreased by $1.2 million (4.3%) as compared to fiscal 2002.
As a percentage of net revenues, S,G&A decreased to 30.3% in fiscal 2003 from
31.9% in fiscal 2002. The decrease in S,G& A in absolute and relative terms
was primarily due to: (i) a $487,000 decrease in payroll related costs; (ii) a
$476,000 decrease in amortization and depreciation; and (iii) a $168,000
decrease in professional fees. Interest Expense, net  - Interest expense, net decreased approximately
$103,000 (14.7%) in fiscal 2003 as compared to fiscal 2002. The decrease was
attributable primarily to decreased overall levels of borrowing and lower
interest rates. Benefit for Income Taxes  - The sporting goods segment has a net operating
loss carryforward included in net deferred tax assets that can be used to
offset future taxable income and can be carried forward for 15 to 20 years. As
such, realization of the deferred tax asset is dependent on generating
sufficient taxable income, either through operations or tax planning
strategies, prior to the expiration of loss carryforwards. See Item 8 
Financial Statements and Supplementary Data  Note 7 of Notes to Consolidated
Financial Statements. Discontinued Operations  Discontinued operations reflect net operating
losses related to our discontinued and sold team dealer operations and the net
income from our sold ATEC subsidiary. 44




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Cumulative Effect of Change in Accounting Principle - On April 1, 2002, we
adopted Financial Accounting Standards Boards Statement No. 142, Goodwill and
Other Intangible Assets (SFAS 142). SFAS 142 requires that goodwill not be
amortized, but instead be tested for impairment at least annually by reporting
unit. Goodwill is required to be tested for impairment in a transitional test
upon adoption and then at least annually by reporting unit. As a result of our
testing, a non-cash cumulative effect of accounting change write down of
approximately $7.4 million was recorded. As a result of the write down of
$7.4 million, SSG has no remaining goodwill on their financial statements. Net loss - As a result of the foregoing factors, a net loss of $9.3
million was reported for fiscal 2003 as compared to a net loss of $3.9 million
for fiscal 2002. Liquidity and Capital Resources As of March 31, 2004, we had cash and cash equivalents of approximately
$6.4 million compared to approximately $11.4 million at March 31, 2003.
Working capital decreased to $46.8 million at March 31, 2004 as compared to
$49.1 at March 31, 2003. The decrease in cash and cash equivalents of
approximately $5.0 million was primarily due to financing activities, partially
offset by investing activities. Operating cash flow used in continuing operating activities was
approximately $2.1 million for fiscal 2004. Cash was primarily used for
operations by the increase in inventories to meet consumer demand, offset by a reduction of prepaid
and other current assets, and an increase in accounts payables and other
current liabilities. Operating cash flow provided by discontinued operations for the fiscal
year 2004 was approximately $2.4 million due to the results and disposals of
SSGs ATEC subsidiary and Team Dealer locations. Net cash provided by investing activities was $10.3 million for fiscal
2004, due to the sale of ATEC shares for $10.5 million, offset by the purchase
of fixed assets, which consisted mainly of computer and office equipment. Net cash utilized by financing activities was $15.6 million for fiscal
2004. Cash was primarily utilized for the reduction of borrowings and the
repurchase of Emersons common stock. Emerson and SSG maintain credit facilities as described in Note 6 
Borrowings. At March 31, 2004, there were approximately $15 million of
borrowings outstanding under these facilities, of which no letters of credit
were outstanding. Emerson amended its loan agreement and obtained a waiver of
non-compliance with a financial covenant for the period ended March 31, 2004.
At March 31, 2004, SSG was in compliance with the covenants on its credit
facilities. Our foreign subsidiaries maintain various credit facilities, aggregating
$82.5 million, with Hong Kong banks consisting of the following: 45




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
    
    two letter of credit facilities totaling $12.5 million
which is used for inventory purchases; and  
    
    four back-to-back letter of credit facilities totaling
$70 million. At March 31, 2004, our Hong Kong subsidiary pledged approximately $3.0
million in certificates of deposit to this bank to assure the availability of
the $12.5 million credit facilities. At March 31, 2004, there were
approximately $14.3 million of letters of credit outstanding under these credit
facilities. These letter of credit facilities require a net worth covenant of
the foreign subsidiaries with which this subsidiary was in compliance at March
31, 2004. Short-Term Liquidity. Liquidity for the consumer electronics segment is impacted by its
seasonality in that we generally record the majority of our annual sales in the
quarters ending September and December. This requires the consumer electronics
segment to maintain higher inventory levels during the quarters ending June and
September, therefore increasing the working capital needs during these periods.
Additionally, the consumer electronics segment receives the largest percentage
of product returns in the quarter ending March. The higher level of returns
during this period adversely impacts Emersons collection activity, and
therefore its liquidity. Management believes that the license agreements as
discussed above, continued sales margin improvement and the policies in place
for returned products, should continue to favorably impact its cash flow. In
fiscal 2004, products representing approximately 51% of net revenues of the
consumer electronics segment were imported directly to our customers that
contribute significantly to Emersons liquidity. Liquidity for the sporting goods segment is also impacted by its
seasonality in that it generally records the majority of revenues in the March
quarter, which is its highest sales period. The quarter ending December is its
lowest sales period. This requires the sporting goods segment to maintain
higher amounts of inventory during the quarters ending March and June,
therefore increasing the working capital needs during these periods. Our principal existing sources of cash are generated from operations and
borrowings available under our revolving credit facility. As of March 31,
2004, we had $35.7 million of borrowing capacity available under our $45.0
million revolving credit facilities (reflecting outstanding loans of
approximately $15.0 million). In addition, at March 31, 2004 we had $70.0
million of letter of credit facilities, of which approximately $65.0 million
was available. We believe that our existing sources of cash for the consumer
electronics segment and sporting goods segment will be sufficient to support
our existing operations over the next 12 months; provided, however, we may
raise additional financing, which may include the issuance of equity
securities, or the incurrence of additional debt, in connection with our
operations or if we elect to grow our business through acquisitions. Long-Term Liquidity.We continue to be subject to competitive pressures
arising from pricing strategies. SSG has discontinued certain lower margin
products in favor of higher margin 46




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replacement products. Management believes that this, together with our
various license agreements and the continued introduction of higher margin
products in both segments, the sourcing of less costly product from foreign
manufacturers by SSG combined with reduced selling, general and administrative
expenses will result in a return to profitability by SSG. Both senior secured
credit facilities for Emerson and SSG impose financial covenants.
Non-compliance with the covenants could materially affect our future liquidity.
Management believes that anticipated cash flow from operations and the
financing noted above will provide sufficient liquidity to meet our operating
and debt service cash requirements on a long-term basis. The following summarizes our obligations at March 31, 2004 for the periods
shown (in thousands): Payment due by periodLess than
    
    1  3
    
    3  5
    
    More thanTotal
    
    1 year
    
    years
    
    years
    
    5 yearsNotes payable
    
    $
    14,972
    
    
    $
    
    
    
    $
    8,000
    
    
    $
    6,972
    
    
    $
    Capital lease obligations
    
    
    113
    
    
    
    58
    
    
    
    55
    
    
    
    
    
    
    
    Leases
    
    
    7,834
    
    
    
    2,630
    
    
    
    3,714
    
    
    
    1,490
    
    
    
    Total
    
    $
    22,919
    
    
    $
    2,688
    
    
    $
    11,769
    
    
    $
    8,462
    
    
    $
    
 As of March 31, 2004, there were no material capital expenditure
commitments and no substantial commitments for purchase orders outside the
normal purchase orders used to secure product. Off-Balance Sheet Arrangements.We do not have any off-balance sheet
arrangements. Critical Accounting Policies The discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which have
been prepared in accordance with United States accounting principles. The
preparation of these financial statements require us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses. We consider certain accounting policies related to inventories,
trade accounts receivables, impairment of long lived assets, valuation of
deferred tax assets, sales return reserves and cooperative advertising accruals
to be critical policies due to the estimation processes involved in each. Inventories.Inventories are stated at the lower of cost or market. Cost
is determined using the first-in, first-out basis for our consumer electronics
segment, and average cost for our sporting goods segment. We record inventory
reserves to reduce the carrying value of inventory for estimated obsolescence
or unmarketable inventory equal to the difference between the cost of inventory
and the estimated market value based upon assumptions about future demand and
market conditions. If actual market conditions are less favorable than those
projected by 47




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management, additional inventory reserves may be required. Conversely, if
market conditions improve, such reserves are reduced. Trade Accounts Receivable.We extend credit based upon evaluations of a
customers financial condition and provide for any anticipated credit losses in
our financial statements based upon managements estimates and ongoing reviews
of recorded allowances. If the financial conditions of our customers were to
deteriorate, resulting in an impairment of their ability to make payments,
additional reserves may be required. Conversely, reserves are deducted to
reflect credit and collection improvements. Intangible Assets.SSG has intangible assets related to other acquired
intangibles. The determination of related estimated useful lives and whether
or not these assets are impaired involves management judgments. Changes in
strategy and/or market conditions could significantly impact these judgments
and require adjustments to recorded asset balances. On April 1, 2002, we
adopted SFAS 142, which requires us to cease amortization of goodwill, to
perform a transitional test for potential goodwill impairment upon adoption,
and then test goodwill for impairment at least annually by reporting unit. See
Note 5  Goodwill and Other Intangible Assets. Income Taxes.We record a valuation allowance to reduce the amount of our
deferred tax assets to the amount that is more likely than not to be realized.
While we have considered future taxable income and ongoing tax planning
strategies in assessing the need for the valuation allowance, in the event that
we determined that we would not be able to realize our deferred tax assets in
the future in excess of the net recorded amount, an adjustment to the deferred
tax asset would increase income in the period such determination was made.
Likewise, if it was determined that we would not be able to realize all or part
of the net deferred tax asset in the future, an adjustment to the deferred tax
asset would be charged to income in the period such determination was made. Sales Return Reserves.Our management must make estimates of potential
future product returns related to current period product revenue. Management
analyzes historical returns, current economic trends and changes in customer
demand for our products when evaluating the adequacy of the reserve for sales
returns. Management judgments and estimates must be made and used in
connection with establishing the sales return reserves in any accounting
period. If actual sales returns increase above the historical return rates,
then additional reserves may be required. Conversely, the sales return reserve
could be decreased if the actual return rates are less than the historical
return rates, which were used to establish such sales return reserve. Cooperative Advertising Accruals.Cooperative advertising programs
promotions and other volume-based incentives, which are provided to retailers
and distributors for advertising and sales promotions, are accounted for on an
accrual basis as a reduction in net revenues in the period, which the related
sales are recognized as per EITF 01-09 Accounting for Consideration Given by a
Vendor to a Customer. If additional cooperative advertising programs
promotions and other volume-based incentives are required to promote the
Companys products, then additional reserves may be required. Conversely,
reserves are decreased to reflect the lesser need for cooperative advertising
programs. 48




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Recently-Issued Financial Accounting Pronouncements In May 2003, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 150 (SFAS 150), Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity,
which addresses how an issuer classifies and measures financial instruments
with characteristics of both liabilities and equity. It requires that an
issuer classify a financial instrument that is within its scope as a liability
(or an asset in some circumstances) because that financial instrument embodies
an obligation of the issuers. This statement is effective for financial
instruments entered into or modified after May 31, 2003. For financial
instruments created before the issuance date of this statement and still
existing at the beginning of the interim period of adoption, transition shall
be achieved by reporting the cumulative effect of a change in an accounting
principle by initially measuring the financial instruments at fair value or
other measurement attribute required by this statement. We adopted this
statement as of July 1, 2003 and it did not have any material impact on our
financial statements. 
 Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Inflation, Foreign Currency, and Interest Rates Neither inflation nor currency fluctuations had a significant effect on
our results of operations during fiscal 2004. Our exposure to currency
fluctuations has been minimized by the use of U.S. dollar denominated purchase
orders, and by sourcing production in more than one country. The consumer
electronics segment purchases virtually all of its products from manufacturers
located in various Asian countries. The interest on borrowings under our credit facilities is based on the
prime rate. While a significant increase in interest rates could have an
adverse effect on our financial condition and results of operations, management
believes that given the present economic climate, interest rates are not
expected to increase significantly during the coming year. 49




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Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Index to Financial Statements Page No.
    Report of Independent Registered Public Accounting Firm
    
    
    51
    Report of Independent Registered Public Accounting Firm
    
    
    52
    Consolidated Statements of Operations for the years ended
March 31, 2004, 2003 and 2002
    
    
    53
    Consolidated Balance Sheets as of March 31, 2004 and 2003
    
    
    54
    Consolidated Statements of Changes in Shareholders Equity
for the years ended March 31, 2004, 2003 and 2002
    
    
    55
    Consolidated Statements of Cash Flows for the years ended
March 31, 2004, 2003 and 2002
    
    
    56
    Notes to Consolidated Financial Statements
    
    
    57
    Schedule IIValuation and Qualifying Accounts and Reserves
    
    
    92
    All other
schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes
thereto.
 50




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders
of Emerson Radio Corp. We have audited the accompanying consolidated balance sheet of Emerson
Radio Corp. and Subsidiaries as of March 31, 2004, and the related consolidated
statements of operations, shareholders equity, and cash flows for the year
then ended. Our audit also included the financial statement schedule listed
in the Index at Item 15(a). These consolidated financial statements and
schedule are the responsibility of the management of Emerson Radio Corp. and
Subsidiaries. Our responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audit. We conducted our audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements and schedule are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and schedule. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall presentation of the financial statement and schedule.
 We believe
that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position

of Emerson Radio Corp. and Subsidiaries at March 31, 2004, and the consolidated
results of their operations and their cash flows for the year then ended, in
conformity with accounting principles generally accepted in the United States.
Also, in our opinion, the related financial statement schedule presents fairly
in all material respects the information set forth therein. BDO SEIDMAN, LLP New York, New York
June 28, 2004 51




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders
of Emerson Radio Corp. We have audited the accompanying consolidated balance sheets of Emerson
Radio Corp. and Subsidiaries as of March 31, 2003, and the related consolidated
statements of operations, shareholders equity, and cash flows for each of the
two years in the period ended March 31, 2003. Our audits also included the
financial statement schedule listed in the Index at Item 15(a). These
consolidated financial statements and schedule are the responsibility of the
management of Emerson Radio Corp. and Subsidiaries. Our responsibility is to
express an opinion on these financial statements and financial statement
schedule based on our audits. We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audits to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Emerson Radio Corp. and Subsidiaries at March 31, 2003, and the consolidated
results of its operations and cash flows for each of the two years in the
period ended March 31, 2003, in conformity with U.S. generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken
as a whole, presents fairly in all material respects the information set forth
therein. As discussed in Note 5 to the consolidated financial statements, the
Company adopted Statement of Accounting Standard No. 142, Goodwill and Other
Intangible Assets, effective April 1, 2002. ERNST & YOUNG, LLP New York, New York
May 19, 2003 52




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EMERSON RADIO CORP. AND SUBSIDIARIES




CONSOLIDATED STATEMENTS OF OPERATIONS
For The Years Ended March 31, 2004, 2003, and 2002
(In thousands, except per share data)


2004
    
    2003
    
    2002Net revenues
    
    $
    263,774
    
    
    $
    330,315
    
    
    $
    297,175Costs and expenses:Cost of sales
    
    
    215,454
    
    
    
    264,037
    
    
    
    241,525Other operating costs and expenses
    
    
    5,254
    
    
    
    4,348
    
    
    
    4,949Selling, general and administrative expenses
    
    
    42,034
    
    
    
    43,196
    
    
    
    41,166Acquisition costs
    
    
    1,553
    
    
    
    
    
    
    
    Stock based compensation
    
    
    511
    
    
    
    49
    
    
    
    264,806
    
    
    
    311,630
    
    
    
    287,640Operating income (loss)
    
    
    (1,032
    )
    
    
    18,685
    
    
    
    9,535Litigation settlement, net
    
    
    
    
    
    
    
    
    
    
    2,933Interest expense, net
    
    
    (1,342
    )
    
    
    (2,492
    )
    
    
    (3,122
    )Minority interest in net loss of consolidated
subsidiary
    
    
    789
    
    
    
    731
    
    
    
    1,712Income (loss) before income taxes and cumulative
effect of change in accounting principle
    
    
    (1,585
    )
    
    
    16,924
    
    
    
    11,058Provision (benefit) for income taxes
    
    
    2,150
    
    
    
    (9,282
    )
    
    
    (7,591
    )Income (loss) from continuing operations
    
    
    (3,735
    )
    
    
    26,206
    
    
    
    18,649Income from discontinued operations, net of tax
    
    
    2,661
    
    
    
    840
    
    
    
    758Cumulative effect of change in accounting
principle
    
    
    
    
    
    
    (5,546
    )
    
    
    Net income (loss)
    
    $
    (1,074
    )
    
    $
    21,500
    
    
    $
    19,407Basic net income (loss) per shareContinuing operations
    
    $
    (.14
    )
    
    $
    .95
    
    
    $
    .60Discontinued operations
    
    
    .10
    
    
    
    .03
    
    
    
    .02Cumulative effect of change in accounting
principle
    
    
    
    
    
    
    (.20
    )
    
    
    $
    (.04
    )
    
    $
    .78
    
    
    $
    .62Diluted net income (loss) per shareContinuing operations
    
    $
    (.14
    )
    
    $
    .91
    
    
    $
    .50Discontinued operations
    
    
    .10
    
    
    
    .03
    
    
    
    .02Cumulative effect of change in accounting
principle
    
    
    
    
    
    
    (.19
    )
    
    
    $
    (.04
    )
    
    $
    .75
    
    
    $
    .52Weighted average shares outstandingBasic
    
    
    27,227
    
    
    
    27,716
    
    
    
    31,298Diluted
    
    
    27,227
    
    
    
    28,640
    
    
    
    40,485


The accompanying notes are an integral part of the consolidated financial statements.

53




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EMERSON RADIO CORP. AND SUBSIDIARIES 
 CONSOLIDATED BALANCE SHEETS
As of March 31, 2004 and 2003
(In thousands, except share data)
 2004
    
    2003ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    6,369
    
    
    $
    11,413Accounts receivable (less allowances of $3,653 and $3,938, respectively)
    
    
    19,948
    
    
    
    24,593Other receivables
    
    
    2,821
    
    
    
    2,954Inventories
    
    
    46,997
    
    
    
    45,177Prepaid expenses and other current assets
    
    
    5,344
    
    
    
    6,871Deferred tax assets
    
    
    5,887
    
    
    
    6,761Total current assets
    
    
    87,366
    
    
    
    97,769Property, plant, and equipment, net
    
    
    7,822
    
    
    
    9,823Deferred catalog expenses
    
    
    1,695
    
    
    
    1,912Trademarks and other intangible assets
    
    
    5,168
    
    
    
    5,613Deferred tax assets
    
    
    15,263
    
    
    
    17,595Other assets
    
    
    1,355
    
    
    
    1,850Total Assets
    
    $
    118,669
    
    
    $
    134,562LIABILITIES AND SHAREHOLDERS EQUITYCurrent Liabilities:Short-term borrowings
    
    $
    4,762
    
    
    $
    1,918Current maturities of long-term borrowings
    
    
    58
    
    
    
    11,634Accounts payable and other current liabilities
    
    
    32,787
    
    
    
    30,596Accrued sales returns
    
    
    2,521
    
    
    
    3,768Income taxes payable
    
    
    509
    
    
    
    752Total current liabilities
    
    
    40,637
    
    
    
    48,668Long-term borrowings
    
    
    15,027
    
    
    
    18,079Minority interest
    
    
    15,793
    
    
    
    16,578Shareholders Equity:Preferred shares  10,000,000 shares authorized; 3,677
shares issued and outstanding,
    
    
    3,310
    
    
    
    3,310Common shares  $.01 par value, 75,000,000 shares authorized;
52,310,350 and 51,981,431 shares issued; 26,630,383 and 27,413,089
shares outstanding, respectively
    
    
    523
    
    
    
    520Capital in excess of par value
    
    
    116,304
    
    
    
    115,122Accumulated other comprehensive losses
    
    
    (83
    )
    
    
    (104
    )Accumulated deficit
    
    
    (49,010
    )
    
    
    (47,936
    )Treasury stock, at cost, 25,679,967 and 24,568,342 shares, respectively
    
    
    (23,832
    )
    
    
    (19,675
    )Total shareholders equity
    
    
    47,212
    
    
    
    51,237Total Liabilities and Shareholders Equity
    
    $
    118,669
    
    
    $
    134,562
 The accompanying notes are an integral part of the consolidated financial
statements. 54




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EMERSON RADIO CORP. AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
For The Years Ended March 31, 2004, 2003, and 2002
(In thousands, except share data)
 Common Shares IssuedPreferred
    
    Number
    
    Par
    
    TreasuryStock
    
    Of Shares
    
    Value
    
    StockBalance  March 31, 2001
    
    $
    3,310
    
    
    
    51,475,511
    
    
    $
    515
    
    
    $
    (13,192
    )Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (786
    )Preferred dividend cancellationComprehensive income:Net income for the yearCurrency translation adjustmentUnrealized loss on securitiesComprehensive incomeBalance  March 31, 2002
    
    
    3,310
    
    
    
    51,475,511
    
    
    
    515
    
    
    
    (13,978
    )Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,697
    )Exercise of stock options and
warrants
    
    
    
    
    
    
    505,920
    
    
    
    5Stock based costsComprehensive income:Net income for the yearInterest rate swapUnrealized loss on securitiesComprehensive incomeBalance  March 31, 2003
    
    
    3,310
    
    
    
    51,981,431
    
    
    
    520
    
    
    
    (19,675

    )Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,157
    )Exercise of stock options and
warrants
    
    
    
    
    
    
    328,919
    
    
    
    3Stock based costsTax benefit from exercise of
employee
stock optionsComprehensive income:Net income (loss) for the yearInterest rate swapRecognition of realized losses in net lossUnrealized loss on securitiesComprehensive income (loss)Balance  March 31, 2004
    
    $
    3,310
    
    
    
    52,310,350
    
    
    $
    523
    
    
    $
    (23,832
    )
   [Continued from above table, first column(s) repeated] Capital
    
    Accumulated Other
    
    
    
    
    
    TotalIn excess of
    
    Comprehensive
    
    Accumulated
    
    ShareholdersPar Value
    
    Losses
    
    Deficit
    
    EquityBalance  March 31, 2001
    
    $
    113,459
    
    
    $
    (118
    )
    
    $
    (88,843
    )
    
    $
    15,131Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (786
    )Preferred dividend cancellation
    
    
    992
    
    
    
    
    
    
    
    
    
    
    
    992Comprehensive income:Net income for the year
    
    
    
    
    
    
    
    
    
    
    19,407
    
    
    
    19,407Currency translation adjustment
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    (1
    )Unrealized loss on securities
    
    
    
    
    
    
    (3
    )
    
    
    
    
    
    
    (3
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,403Balance  March 31, 2002
    
    
    114,451
    
    
    
    (122
    )
    
    
    (69,436
    )
    
    
    34,740Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,697
    )Exercise of stock options and
warrants
    
    
    622
    
    
    
    
    
    
    
    
    
    
    
    627Stock based costs
    
    
    49
    
    
    
    
    
    
    
    
    
    
    
    49Comprehensive income:Net income for the year
    
    
    
    
    
    
    
    
    
    
    21,500
    
    
    
    21,500Interest rate swap
    
    
    
    
    
    
    20
    
    
    
    
    
    
    
    20Unrealized loss on securities
    
    
    
    
    
    
    (2
    )
    
    
    
    
    
    
    (2
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,518Balance  March 31, 2003
    
    
    115,122
    
    
    
    (104
    )
    
    
    (47,936
    )
    
    
    51,237Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,157
    )Exercise of stock options and
warrants
    
    
    281
    
    
    
    
    
    
    
    
    
    
    
    284Stock based costs
    
    
    511
    
    
    
    
    
    
    
    
    
    
    
    511Tax benefit from exercise of
employee
stock options
    
    
    390
    
    
    
    
    
    
    
    
    
    
    
    390Comprehensive income:Net income (loss) for the year
    
    
    
    
    
    
    
    
    
    
    (1,074
    )
    
    
    (1,074
    )Interest rate swap
    
    
    
    
    
    
    (16
    )
    
    
    
    
    
    
    (16
    )Recognition of realized losses in net loss
    
    
    
    
    
    
    42
    
    
    
    
    
    
    
    42Unrealized loss on securities
    
    
    
    
    
    
    (5
    )
    
    
    
    
    
    
    (5
    )Comprehensive income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,053
    )Balance  March 31, 2004
    
    $
    116,304
    
    
    $
    (83
    )
    
    $
    (49,010
    )
    
    $
    47,212
 The accompanying notes are an integral part of the consolidated financial
statements. 55




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EMERSON RADIO CORP. AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Years Ended March 31, 2004, 2003, and 2002
(In thousands)
 2004
    
    2003
    
    2002Cash Flows from Operating Activities:Income (loss) from continuing operations
    
    $
    (3,735
    )
    
    $
    20,660
    
    
    $
    18,649Adjustments to reconcile net income (loss) to net
cash provided by operating activities:Minority interest
    
    
    (789
    )
    
    
    (731
    )
    
    
    (2,958
    )Depreciation and amortization
    
    
    3,375
    
    
    
    2,968
    
    
    
    3,426Deferred tax expenses (benefit)
    
    
    1,483
    
    
    
    (10,957
    )
    
    
    (7,899
    )Cumulative effect of accounting change
    
    
    
    
    
    
    5,546
    
    
    
    Asset allowances, reserves, and other
    
    
    128
    
    
    
    (40
    )
    
    
    2,449Changes in assets and liabilities:Accounts receivable
    
    
    (66
    )
    
    
    5,132
    
    
    
    (3,148
    )Other receivables
    
    
    (47
    )
    
    
    (363
    )
    
    
    (1,609
    )Inventories
    
    
    (7,191
    )
    
    
    (3,590
    )
    
    
    2,512Prepaid expenses and other current assets
    
    
    1,694
    
    
    
    (3,054
    )
    
    
    344Other assets
    
    
    (72
    )
    
    
    (1,198
    )
    
    
    (235
    )Accounts payable and other current liabilities
    
    
    3,386
    
    
    
    312
    
    
    
    (2,074
    )Income taxes payable
    
    
    (243
    )
    
    
    649
    
    
    
    (378
    )Net cash (used in) provided by continuing operations
    
    
    (2,077
    )
    
    
    15,334
    
    
    
    9,079Net cash provided by discontinued operations
    
    
    2,394
    
    
    
    91
    
    
    
    745Net cash provided by operating activities
    
    
    317
    
    
    
    15,425
    
    
    
    9,824Cash Flows from Investing Activities:Additions to property and equipment
    
    
    (257
    )
    
    
    (512
    )
    
    
    (692
    )Net cash used  by continuing
operations
    
    
    (257
    )
    
    
    (512
    )
    
    
    (692
    )Proceeds from sale of ATEC
    
    
    10,517
    
    
    
    
    
    
    
    Other investing activities of discontinued
operations
    
    
    
    
    
    
    (110
    )
    
    
    (210
    )Net cash provided (used) by discontinued operations
    
    
    10,517
    
    
    
    (110
    )
    
    
    (210
    )Net cash provided (used) by investing activities
    
    
    10,260
    
    
    
    (622
    )
    
    
    (902
    )Cash Flows from Financing Activities:Net borrowings (repayments) under line of credit
facility
    
    
    2,844
    
    
    
    (9,385
    )
    
    
    3,577Short-term borrowings
    
    
    
    
    
    
    11,533
    
    
    
    Repayments of short-term borrowings
    
    
    (11,556
    )
    
    
    
    
    
    
    (30
    )Purchase of preferred and common stock
    
    
    (4,157
    )
    
    
    (5,697
    )
    
    
    (786
    )Exercise of stock options and warrants
    
    
    284
    
    
    
    627
    
    
    
    Litigation settlement
    
    
    
    
    
    
    
    
    
    
    (98
    )Long-term borrowings
    
    
    146,655
    
    
    
    123,457
    
    
    
    123,834Repayments of long-term borrowings
    
    
    (149,691
    )
    
    
    (143,153
    )
    
    
    (124,178
    )Net cash provided (used) by financing activities
    
    
    (15,621
    )
    
    
    (22,618
    )
    
    
    2,319Net increase (decrease) in cash and cash equivalents
    
    
    (5,044
    )
    
    
    (7,815
    )
    
    
    11,241Cash and cash equivalents at beginning of year
    
    
    11,413
    
    
    
    19,228
    
    
    
    7,987Cash and cash equivalents at end of year
    
    $
    6,369
    
    
    $
    11,413
    
    
    $
    19,228Supplemental disclosure of cash flow information:Cash paid for interest
    
    $
    1,158
    
    
    $
    2,184
    
    
    $
    3,391Cash paid for income taxes
    
    $
    1,625
    
    
    $
    1,226
    
    
    $
    1,278
 The accompanying notes are an integral part of the consolidated financial statements. 56




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EMERSON RADIO CORP. AND SUBSIDIARIES 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2004
 NOTE 1  SIGNIFICANT ACCOUNTING POLICIES: Background and Basis of Presentation The consolidated financial statements include the accounts of Emerson
Radio Corp. (Emerson, consolidated  the Company) and its majority-owned
subsidiaries, including Sport Supply Group, Inc. (SSG), which has been 53.2%
owned since February 2002. All significant intercompany transactions and
balances have been eliminated. The Company operates in two business segments: consumer electronics and
sporting goods. The consumer electronics segment designs, sources, imports and
markets a variety of consumer electronic products and licenses the
[Emerson logo] trademark
for a variety of products domestically and internationally to certain
licensees. The sporting goods segment, which is operated through SSG,
manufactures and markets sports related equipment and leisure products to
institutional customers in the United States. From July 2003 through October 2003, certain of SSGs team dealer
locations were discontinued. In November 2003, SSG sold all of the issued and
outstanding capital stock of its wholly-owned subsidiary, Athletic Training
Equipment Company, Inc. (ATEC). Collectively, SSG refers to these as
Discontinued Operations and accordingly, the accompanying financial
statements reflect these as discontinued operations. The financial statements
for fiscal 2002 through 2004 have been reclassified to reflect such
discontinued results. (See Note 17) Use of Estimates In preparing financial statements in conformity with generally accepted
accounting principles, the Company is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and revenues and expenses during the reporting period. Actual
results could differ from those estimates. Cash Equivalents Short-term investments with original maturities of three months or less at
the time of purchase are considered to be cash equivalents. Fair Values of Financial Instruments The carrying amounts for cash and cash equivalents, trade accounts
receivable, accounts payable and accrued liabilities approximate fair value due
to short-term maturity of these financial instruments. The carrying amounts of
bank debt approximate their fair values due to their variable rate interest
features. The fair value of the preferred stock is based on the fair value of
the common stock into which the preferred stock is convertible. The carrying
value of the debentures approximates fair value. 57




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EMERSON RADIO CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   (Continued) Investments The Company determines the appropriate classifications of securities at
the time of purchase and evaluates the continuing appropriateness of that
classification thereafter. The investments held by the Company at March 31,
2004 and 2003 were classified as available-for-sale securities, and are
included in prepaid expenses and other current assets. Realized gains and
losses are reported separately as a component of income, and unrealized gains
and losses are reported separately as a component of comprehensive income.
Declines in the market value of securities deemed to be other than temporary
are included in earnings. Concentrations of Credit Risk Certain financial instruments potentially subject the Company to
concentrations of credit risk. Accounts receivable for the consumer
electronics segment represent sales to retailers and distributors of consumer
electronics throughout the United States and Canada. Accounts receivable for
the sporting goods segment represent sales to all levels of public and private
schools, colleges, universities, and military academies, municipal and
governmental agencies, military facilities, churches, clubs, camps, hospitals,
youth sports leagues, non-profit organizations, team dealers and certain large
retail sporting goods chains. The Company periodically performs credit
evaluations of its customers but generally does not require collateral. The
Company provides for any anticipated credit losses in the financial statements
based upon managements estimates and ongoing reviews of recorded allowances.
The allowance for doubtful accounts was approximately $818,000, $1,243,000, and
$2,945,000 as of March 31, 2004, 2003, and 2002, respectively. (See Note 14) Property and Equipment Property and equipment are carried at cost, less accumulated depreciation
and amortization. Depreciation is being computed using the straight-line
method over the estimated useful lives. Leasehold improvements are amortized
on a straight-line basis over the shorter of the useful life of the improvement
or the term of the lease. The cost of maintenance and repairs is charged to
expense as incurred. Significant renewals and betterments are capitalized and
depreciated over the remaining estimated useful lives of the related assets.
At time of disposal, the cost and related accumulated depreciation are removed
from the Companys records and the difference between net carrying value of the
asset and cash received is recorded as a gain or loss. Depreciation of property, plant and equipment is provided by the
straight-line method as follows: 
    
    Buildings
    
    Thirty years to forty years
    
    Machinery and Equipment
    
    Five years to ten years
    
    Computer Equipment and Software
    
    Three years to ten years
    
    Furniture & Fixtures and Office Equipment
    
    Five years to seven years
 58




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EMERSON RADIO CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   (Continued) Long-Lived Assets The Companys long-lived assets include property and equipment and
amortizable intangibles. At March 31, 2004, the Company had approximately
$7,822,000 of property and equipment, net of accumulated depreciation, and
approximately $5,168,000 of amortizable intangible assets, net of amortization,
accounting for approximately 11.0% of the Companys total assets. The Company
reviews its long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable in accordance with Statement of Financial Accounting Standards
(SFAS) No. 144, Accounting for the Impairment or Disposals of Long-Lived
Assets. Recoverability of assets held and used are measured by a comparison
of the carrying amount of an asset to undiscounted pre-tax future net cash
flows. Future events could cause the Company to conclude that impairment
indicators exist and that long-lived assets may be impaired. Any resulting
impairment loss could have a material adverse impact on the Companys financial
condition and results of operations. Revenue Recognition Revenues are recognized at the time title passes to the customer. Under
the Direct Import Program for the consumer electronics segment, title passes in
the country of origin. Under the Domestic Program for the consumer electronics
segment and the sporting goods segment, title passes primarily at the time of
shipment. Estimates for possible returns are based upon historical return
rates and netted against revenues. Customers in the sporting goods segment,
subject to certain limitations, have the right to return product within a set
period if they are not completely satisfied. In the consumer electronics
segment, returns are not permitted unless defective. Cost of Sales Cost of sales includes actual product cost, change in inventory reserves,
duty, buying costs, the cost of transportation to the Companys warehouses from
its manufacturers, warehousing costs, and an allocation of depreciation and
amortization. Other Operating Costs and Expenses Other operating costs and expenses pertains only to the consumer
electronics segment, and includes costs associated with returned product
received from retailers, the costs associated with the markdown of returned
inventory, and an allocation of depreciation and amortization. Because we do
not include other operating costs and expenses in cost of sales, our gross
margin may not be comparable to those of other distributors that may include
all costs related to the cost of product to their cost of sales and in the
calculation of gross margin. 59




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EMERSON RADIO CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   (Continued) Selling, General and Administrative Expenses Selling, general and administrative expenses include all operating costs
of the Company that are not directly related to the cost of procuring product
or costs not included in other operating costs and expenses. Acquisition Costs Acquisition costs include all costs that are incurred by the Company in
unsuccessful acquisition attempts. These costs are charged to operations when
the potential acquisition is deemed unrealizable. Foreign Currency The assets and liabilities of foreign subsidiaries have been translated at
current exchange rates, and related revenues and expenses have been translated
at average rates of exchange in effect during the year. Related translation
adjustments are reported as a separate component of shareholders equity.
Losses resulting from foreign currency transactions are included in the
Consolidated Statements of Operations. The Company does not enter into foreign currency exchange contracts to
hedge its exposures related to foreign currency fluctuations. Advertising and Deferred Catalog Expenses Advertising expenses are charged to operations as incurred, except for
production costs related to direct-response advertising activities, which are
capitalized. Direct response advertising pertains to the sporting goods
segment of the Company, which consists primarily of catalogs. Production and
distribution costs, primarily printing and postage, associated with catalogs
are amortized over twelve months which approximates average usage of the
catalogs produced. Advertising and catalog amortization expenses from
continuing operations, which are included in the selling, general and
administrative expenses line item of the consolidated statements of operations
for the fiscal 2004, 2003, and 2002 were approximately $2,979,000, $3,231,000,
and $3,304,000, respectively. Cooperative Advertising Expenses Cooperative advertising programs and other volume-based incentives are
accounted for on an accrual basis as a reduction in net revenue according to
the requirements of Emerging Issue Task Force 01-09, Accounting for
Consideration Given By a Vendor to a Customer or a Reseller of the Vendors
Products in the period in which the related sales are recognized. Cooperative
advertising expenses were approximately $2,671,000, $4,632,000, and $2,403,000,
for fiscal 2004, 2003, and 2002, respectively. 60




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EMERSON RADIO CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   (Continued) Internet Expenses The Company expenses the operating and development costs of its Internet
websites when incurred. Income Taxes Deferred income taxes are provided for the tax effects of differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Deferred tax assets
have been recorded, net of an appropriate valuation allowance, to the extent
management believes it is more likely than not that such assets will be
realized. (See Note 7). Comprehensive Income Comprehensive income or loss, as disclosed in the Consolidated Statements
of Changes in Shareholders Equity, is net income or loss adjusted for changes
in the fair value of hedge instruments, unrealized gains or losses on
securities, and foreign currency translation adjustments. Net Earnings Per Common Share Net earnings per share are based upon the weighted average number of
common and common equivalent shares outstanding. Outstanding stock options and
warrants are treated as common stock equivalents when dilution results from
their assumed exercise. Stock- Based Compensation Emerson and SSG have elected to follow Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees: (APB 25) and related
Interpretations in accounting for its employee stock options. Under APB 25,
because the exercise price of the Companys employee stock options equals or
exceeds the market price of the underlying stock on the date of grant, no
compensation expense is recognized. Emerson and SSG have adopted the
disclosure-only provisions under Statement of Financial Accounting Standards
No. 123, Accounting for Stock-Based Compensation (SFAS 123). For the
purposes of SFAS 123 pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options vesting periods. The
Companys pro forma information for fiscal 2004, 2003 and 2002 is as follows: 61




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EMERSON RADIO CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   (Continued) 2004
    
    2003
    
    2002Income (loss) from continuing
operations (in thousands):As reported
    
    $
    (3,735
    )
    
    $
    26,206
    
    
    $
    18,649Less: Stock-based compensation
Expense
    
    
    (35
    )
    
    
    (110
    )
    
    
    (124
    )Pro forma
    
    $
    (3,770
    )
    
    $
    26,096
    
    
    $
    18,525Income (loss) from continuing
operations per common share:Basic  as reported
    
    $
    (.14
    )
    
    $
    .95
    
    
    $
    .60Basic  pro forma
    
    $
    (.14
    )
    
    $
    .94
    
    
    $
    .59Diluted  as reported
    
    $
    (.14
    )
    
    $
    .91
    
    
    $
    .50Diluted  pro forma
    
    $
    (.14
    )
    
    $
    .91
    
    
    $
    .46
 2004
    
    2003
    
    2002Net income (loss) (in thousands):As reported
    
    $
    (1,074
    )
    
    $
    21,500
    
    
    $
    19,407Less: Stock-based compensation
Expense
    
    
    (35
    )
    
    
    (110
    )
    
    
    (124
    )Pro forma
    
    $
    (1,109
    )
    
    $
    21,390
    
    
    $
    19,283Net income (loss) per common
share:Basic  as reported
    
    $
    (.04
    )
    
    $
    .78
    
    
    $
    .62Basic  pro forma
    
    $
    (.04
    )
    
    $
    .77
    
    
    $
    .62Diluted  as reported
    
    $
    (.04
    )
    
    $
    .75
    
    
    $
    .52Diluted  pro forma
    
    $
    (.04
    )
    
    $
    .75
    
    
    $
    .48
 Emersons fair values were calculated using the Black-Scholes option
valuation model and the following assumptions for fiscal 2003 and 2002: (i) a
risk free interest rate of 5.91%; (ii) a weighted average expected life of 10
years; (iii) an expected volatility of 98%; and (iv) no dividend yield.
The weighted average fair value of employee stock options granted for the
Emerson Plan in fiscal 2003, and 2002 was $0.68 and $1.18, respectively. For
fiscal 2004, no options were granted by Emerson. SSGs fair values, using the Black-Scholes option valuation model were
calculated using the following for fiscal 2004, 2003 and 2002: (i) a risk free
interest rate of 4.10%, 4.10% and 4.15%; (ii) a weighted average expected life
of 3 years; (iii) an expected volatility of 36%, 36% and 39%; and (iv) a no
dividend yield. The weighted average fair value of employee stock options
granted for the SSG Plan in fiscal 2004, 2003, and 2002 was $0.51, $0.59 and
$0.41, respectively. The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options, which have no vesting restrictions
and are fully transferable. In addition, option 62




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EMERSON RADIO CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   (Continued) valuation models require the input of highly subjective assumptions including
the expected stock price volatility. Because Emersons and SSGs employee
stock options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can materially
affect the fair value estimate, in managements opinion the existing models do
not necessarily provide a reliable single measure of the fair value of its
employee stock options. Derivative Financial Instruments The Company accounts for its interest rate protection agreement under SFAS
133, Accounting for Derivative Instruments and Hedging Activities. SFAS 133
requires all derivatives to be recorded as assets or liabilities and measured
at fair value. Gains or losses resulting from changes in the values of
derivatives are recognized immediately or deferred, depending on the use of the
derivative and whether or not it qualifies as a hedge. The Company uses a
derivative financial instrument to manage its interest rate risk associated
with fluctuations in interest rates on its debt. (See Note 15). Recent Pronouncements In May 2003, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 150 (SFAS 150), Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity,
which addresses how an issuer classifies and measures financial instruments
with characteristics of both liabilities and equity. It requires that an
issuer classify a financial instrument that is within its scope as a liability
(or an asset in some circumstances) because that financial instrument embodies
an obligation of the issuers. This Statement is effective for financial
instruments entered into or modified after May 31, 2003. For financial
instruments created before the issuance date of this Statement and still
existing at the beginning of the interim period of adoption, transition shall
be achieved by reporting the cumulative effect of a change in an accounting
principle by initially measuring the financial instruments at fair value or
other measurement attribute required by this Statement. We adopted this
Statement as of July 1, 2003 and it did not have any material impact on our
financial statements. Reclassifications Certain reclassifications were made to conform prior years financial
statements to the current presentation. NOTE 2  INVENTORIES: Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out for the consumer electronics segment and average
cost for the sporting goods segment. As of March 31, 2004 and 2003,
inventories consisted of the following: 63




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EMERSON RADIO CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   (Continued) March 31, 2004
    
    March 31, 2003(In thousands)Raw materials
    
    $
    1,138
    
    
    $
    2,095Work-in-process
    
    
    67
    
    
    
    318Finished
    
    
    48,878
    
    
    
    45,38750,083
    
    
    
    47,800Less inventory allowances
    
    
    (3,086
    )
    
    
    (2,623
    )$
    46,997
    
    
    $
    45,177
 NOTE 3  RELATED PARTY TRANSACTIONS Effective March 1997, Emerson entered into a Management Services Agreement
with SSG, under which each company provides various managerial and
administrative services to the other company for fees at terms which reflect
arms length transaction. For the fiscal years 2004, 2003, and 2002, SSG
billed Emerson pursuant to the management services agreement fees of
approximately $626,000, $627,000, and $539,000, respectively, while Emerson
billed SSG management service agreement fees of $307,000, $320,000, and
$276,000, respectively. These charges have been eliminated in consolidation,
but are reflected in the segment information presented in Note 14. NOTE 4  PROPERTY, PLANT, AND EQUIPMENT: As of March 31, 2004 and 2003, property, plant, and equipment was
comprised of the following: 2004
    
    2003(In thousands)Land
    
    $
    9
    
    
    $
    9Buildings
    
    
    1,192
    
    
    
    1,192Computer Equipment & Software
    
    
    10,248
    
    
    
    10,737Furniture and fixtures
    
    
    1,218
    
    
    
    1,417Machinery and equipment
    
    
    2,228
    
    
    
    2,717Leasehold improvements
    
    
    369
    
    
    
    37915,264
    
    
    
    16,451Less accumulated depreciation and
amortization
    
    
    (7,442
    )
    
    
    (6,628
    )$
    7,822
    
    
    $
    9,823
 Depreciation and amortization of property, plant, and equipment from
continuing operations amounted to $2,007,000, $2,021,000, and $2,178,000 for
the years ended March 31, 2004, 2003 and 2002, respectively. 64




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EMERSON RADIO CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) NOTE 5  GOODWILL AND OTHER INTANGIBLE ASSETS In June 2001, the Financial Accounting Standards Board issued Statement
No. 142, Goodwill and Other Intangible Assets (SFAS 142). SFAS 142 requires
that goodwill not be amortized but instead be tested for impairment at least
annually by reporting unit. We adopted SFAS 142 effective April 1, 2002. As a
result, we ceased recording amortization of goodwill on April 1, 2002. Goodwill was required to be tested for impairment in a transitional test
upon adoption of SFAS 142 and then at least annually by reporting unit.
Goodwill impairment testing must also be performed more frequently if events or
other changes in circumstances indicate that goodwill might be impaired. Under
the provisions of SFAS 142, a two step process is used to evaluate goodwill
impairment. Under step one of the evaluation process, the carrying value of a
reporting unit is compared to its fair value to determine if a potential
goodwill impairment exists. If a potential goodwill impairment is identified
during step one, then the amount of goodwill impairment, if any, is measured
using a hypothetical purchase price allocation approach under step two of the
evaluation process. The results of our transitional step one analysis indicated that we had a
potential impairment of goodwill. In our step two analysis, the fair value of
the goodwill was determined through a fair evaluation. Through this
evaluation, we determined the fair value of the assets and liabilities to be
the price that they could be sold for in a current arms-length transaction
between willing parties. As a result of our transitional impairment testing
as of April 1, 2002, we recorded a non-cash charge of $5,546,000 as a
cumulative effect of accounting change which brought the carrying value of
goodwill to $0. The following table presents a reconciliation of net income for the year
ended March 31, 2002 as recorded, to net income as adjusted to exclude
goodwill amortization. Goodwill was not amortized in the years ending March
31, 2004 and 2003. Basic Income
    
    Diluted IncomeNet Income
    
    Per Share
    
    Per ShareAs reported
    
    $
    19,407
    
    
    $
    0.62
    
    
    $
    0.52Add back goodwill amortization,
net of tax
    
    
    255
    
    
    
    0.01
    
    
    
    0.01As adjusted
    
    $
    19,662
    
    
    $
    0.63
    
    
    $
    0.53
 Other intangible assets as of March 31, 2004 consist of the amortizable
assets shown below (in thousands). Trademarks relate to costs incurred in
connection with the licensing agreements for the use of certain trademarks and
service marks in conjunction with the sale of our products. The cost of
intangible assets and related accumulated amortization are removed from our
accounts during the year in which they become fully amortized. 65




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EMERSON RADIO CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   (Continued) Weighted AverageGross Carrying
    
    Amortization
    
    Accumulated
    
    Amortization
    
    AmortizationAmount
    
    Expense
    
    Amortization
    
    Period
    
    PeriodAmortizable
Intangible AssetsTrademarks
    
    $
    6,848
    
    
    $
    267
    
    
    $
    3,285
    
    
    10-40 years
    
    17 yearsTrade names
    
    
    1,130
    
    
    
    57
    
    
    
    171
    
    
    20 years
    
    20 yearsPatents
    
    
    685
    
    
    
    98
    
    
    
    294
    
    
    7 years
    
    7 yearsOther
    
    
    350
    
    
    
    23
    
    
    
    95
    
    
    10 years
    
    10 yearsTotal
    
    $
    9,013
    
    
    $
    445
    
    
    $
    3,845
 As of March 31, 2004, estimated amortization expense of other intangible
assets for each of the next five years, and thereafter, is as follows (in
thousands): 2005
    
    $
    4452006
    
    
    4452007
    
    
    4082008
    
    
    3042009
    
    
    207Thereafter
    
    
    3,359$
    5,168
 NOTE 6   BORROWINGS: As of March 31, 2004 and 2003, short-term borrowings consisted of the
following: 2004
    
    2003(In thousands)Foreign bank loan (Foreign Bank Loan)
    
    $
    4,762
    
    
    
    1,918Short-term borrowings
    
    $
    4,762
    
    
    $
    1,918
 Foreign Bank Loan- The Companys foreign subsidiary has a banking
facility with a Hong Kong bank totaling $5.0 million, which is secured by a
pledged bank deposit of approximately $1.3 million. As of March 31, 2004,
approximately $4.8 million was outstanding under this facility. 66




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EMERSON RADIO CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   (Continued) As of March 31, 2004 and 2003, long-term borrowings consisted of the
following: 2004
    
    2003(In thousands)Revolver (Revolver B)
    
    $
    8,000
    
    
    $
    Term loan (Term Loan)
    
    
    
    
    
    
    12,000Notes payable under revolving line of
credit (Revolver C)
    
    
    6,972
    
    
    
    17,522Equipment notes and other
    
    
    113
    
    
    
    19115,085
    
    
    
    29,713Less current maturities
    
    
    58
    
    
    
    11,634Long-term debt and notes payable
    
    $
    15,027
    
    
    $
    18,079
 Revolver B and Term Loan- On June 28, 2002, Emerson entered into a $40
million Loan Agreement with several U.S. financial institutions. The Loan
Agreement provides for a $25 million revolving line of credit (Revolver B)and
a $15 million term loan (Term Loan). Revolver Breplaced Emersons existing
$15 million senior secured facility (Revolver Aas described below), and
provides for revolving loans, subject to individual maximums which, in the
aggregate, are not to exceed the lesser of $25 million or a Borrowing Base
amount based on specified percentages of eligible accounts receivables and
inventories. The Term Loancombined with cash earned from Emersons
operations was used to retire all of Emersons 8.5% Senior Subordinated
Convertible Debentures (Debentures) in the amount of $20.75 million. Revolver
Bloans bear interest at rates ranging from Prime plus .5% to 1.25% or, at
Emersons election, LIBOR plus 2.00% to 2.75%, depending on certain financial
covenants. The interest rate charged on the term loan ranges from Prime plus
1.0% to 1.75% or, at Emersons election, LIBOR plus 2.50% to 3.25%, depending
on certain financial covenants, and amortizes over a three year period. At
March 31, 2004, the weighted average interest rate on the outstanding
borrowings was 3.73% under Revolver B and 3.75% under the Term Loan. Pursuant
to the Loan Agreement, we are restricted from, among other things, paying cash
dividends other than on preferred shares, repurchasing our common stock and
entering into certain transactions without the lenders prior consent and
subject to certain net worth and leverage financial covenants. Amounts
outstanding under the Loan Agreement are secured by substantially all of
Emersons assets. As of March 31, 2004, no borrowing was outstanding under the
Term Loan, and $12 million was outstanding as of March 31, 2003. As of March
31, 2004, $8 million was outstanding under Revolver B,and no borrowing was
outstanding as of March 31, 2003. Emerson amended one of the financial covenants in
its loan agreement and
obtained a waiver of non-compliance with that covenant for the period
ended March 31, 2004. The carrying value of the credit facility approximated
its fair value at March 31, 2004 and 2003. Revolver C- Notes payable under a revolving line of credit (Revolver C)
were issued by SSG to finance working capital requirements through October
2007. The facility provides for a $20 million revolving line of credit, and
provides for revolving loans and is subject to individual maximums which, in
the aggregate, cannot exceed the lesser of $20 million or a Borrowing Base
amount based upon specified percentages of eligible accounts receivables and
inventories. Amounts outstanding under the senior credit facility are secured
by substantially all the assets of SSG and its subsidiaries. The weighted
average interest rate on the outstanding borrowings during the years ended
March 31, 2004 and 2003 were 4.0% and 4.2%, respectively. The interest rate in
effect under this facility at March 31, 2004 was 4.0%. Pursuant to loan
documents governing this line of credit, SSG is restricted from, 67




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EMERSON RADIO CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   (Continued) among other things, paying cash dividends, and entering into certain
transactions without the lenders prior consent. At March 31, 2004, SSG was in
compliance with the covenants on its credit facilities. At March 31, 2004 and
2003, the carrying value of the note payable approximated its fair value. Revolver A- As of March 31, 2002, Emerson had an existing Loan and
Security Agreement (the Loan and Security Agreement), which included a senior
secured credit facility in the amount of $15 million with a U.S. financial
institution. The facility provided for revolving loans and letters of credit,
subject to individual maximums, which in the aggregate, could not exceed the
lesser of $15 million or a Borrowing Base amount based on specified
percentages of eligible accounts receivable and inventories. Amounts
outstanding under the senior credit facility were secured by (i) substantially
all of Emersons U.S. and Canadian assets except for trademarks, which were
subject to a negative pledge covenant, and (ii) a portion of its investment in
SSG. At March 31, 2002, the weighted average interest rate on the outstanding
borrowings was 7.43%. The interest rate charged on this facility was the prime
rate of interest plus 1.25%. Pursuant to the Loan and Security Agreement, the
Company was restricted from, among other things, paying cash dividends (other
than on the Series A Preferred Stock), redeeming stock in certain instances,
and entering into certain transactions without the lenders prior consent and
was required to maintain certain net worth levels. As noted above, this
facility was replaced by a Loan Agreement on June 28, 2002. Debentures- Senior Subordinated Convertible Debentures (Debentures),
which were issued by Emerson in August 1995, were retired in the second quarter
of fiscal 2003. These Debentures bore interest at the rate of 8-1/2% per
annum, payable quarterly, and were subordinated to all existing and future
senior indebtedness (as defined in the Indenture governing the Debentures).
The Debentures were convertible into shares of Emersons common stock at any
time prior to redemption or maturity at an initial conversion price of $3.9875
per share, subject to adjustment under certain circumstances. Maturities of long-term borrowings as of March 31, 2004, by fiscal year
and in the aggregate are as follows (in thousands): 2005
    
    $
    582006
    
    
    8,0552007
    
    
    2008
    
    
    6,9722009
    
    
    Thereafter
    
    
    Total
    
    
    15,085Less current portion
    
    
    (58
    )Total long term portion
    
    $
    15,027
 68




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EMERSON RADIO CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   (Continued) NOTE 7  INCOME TAXES: 2004
    
    2003
    
    2002(In thousands)Current:Federal
    
    $
    
    
    
    $
    
    
    
    $
    (160
    )Foreign, state and other
    
    
    667
    
    
    
    2,018
    
    
    
    468Deferred:Federal
    
    
    1,843
    
    
    
    (11,300
    )
    
    
    (7,899
    )Foreign, state and other
    
    
    (360
    )
    
    
    
    
    
    
    $
    2,150
    
    
    $
    (9,282
    )
    
    $
    (7,591
    )
 Emerson files a consolidated federal return and certain state and local
income tax returns. The difference between the effective rate reflected in the provision for
income taxes and the amounts determined by applying the statutory U.S. rate of
34% to income before income taxes from continuing operations for the years
ended March 31, 2004, 2003, and 2002 are analyzed below: 2004
    
    2003
    
    2002(In thousands)Statutory provision (recovery)
    
    $
    (539
    )
    
    $
    5,389
    
    
    $
    4,089Increase (decrease) in
valuation allowance
    
    
    1,981
    
    
    
    (13,069
    )
    
    
    (12,057
    )Foreign income taxes
    
    
    434
    
    
    
    (1,192
    )
    
    
    254State taxes
    
    
    662
    
    
    
    559
    
    
    
    372Minority interest
    
    
    (268
    )
    
    
    (706
    )
    
    
    (606
    )Other, net
    
    
    (120
    )
    
    
    (263
    )
    
    
    357Total income tax (benefit)
    
    $
    2,150
    
    
    $
    (9,282
    )
    
    $
    (7,591
    )
 As of March 31, 2004 and 2003, the significant components of the Companys
deferred tax assets and liabilities are as follows: 69




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EMERSON RADIO CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   (Continued) 2004
    
    2003(In thousands)Deferred tax assets:Accounts receivable reserves
    
    $
    3,405
    
    
    $
    4,707Inventory reserves
    
    
    1,710
    
    
    
    1,963Net operating loss carryforwards
    
    
    24,791
    
    
    
    25,005Other
    
    
    1,248
    
    
    
    637Total deferred tax assets
    
    
    31,154
    
    
    
    32,312Valuation allowance
    
    
    (7,543
    )
    
    
    (5,562
    )Net deferred tax assets
    
    
    23,611
    
    
    
    26,750Deferred tax liabilities:Intangible assets
    
    
    (578
    )
    
    
    (415
    )Investment in affiliate
    
    
    (1,883
    )
    
    
    (1,883
    )Other
    
    
    
    
    
    
    (96
    )Net deferred taxes
    
    $
    21,150
    
    
    $
    24,356
 Total deferred tax assets for the consumer electronics segment at March
31, 2004 and 2003 include the tax benefit of net operating loss carry forwards
subject to annual limitations (as discussed below) and future deductible
temporary differences to the extent management believes it is more likely than
not that such benefits will be realized. Total deferred tax assets for the sporting goods segment at March 31, 2004
and 2003 include the tax benefit of net operating loss carry forwards, which
expire in the years 2011 through 2023. Such assets are recorded net of a
valuation allowance of $ 7,543,000, to reflect the extent to which management
believes it is more likely than not that such tax benefits will be realized. Income (loss) of foreign subsidiaries before taxes was $(2,872,000),
$6,198,000, and $2,808,000 for the years ended March 31, 2004, 2003, and 2002,
respectively. As of March 31, 2004, Emerson and its consolidated subsidiaries had a
federal net operating loss carryforward of approximately $98,000,000, which
will expire in the years 2006 through 2019. The utilization of these net
operating losses are subject to limitations under IRC section 382. In
addition, SSG has federal net operating loss carryforwards of approximately
$25,500,000, which will expire in the years 2011 through 2022. 70




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EMERSON RADIO CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   (Continued) NOTE 8  COMMITMENTS AND CONTINGENCIES: Leases: The Company leases warehouse and office space with annual commitments as
follows (in thousands): Fiscal Years
    
    Amount2005
    
    $
    2,6302006
    
    
    2,1972007
    
    
    1,5172008
    
    
    1,2342009
    
    
    256
 Rent expense from continuing operations, which includes month-to-month
leases, aggregated $3,228,000, $3,051,000, and $3,045,000 for fiscal 2004,
2003, and 2002, respectively. Letters of Credit: There were no letters of credit outstanding under the Loan Agreement (See
Note 6) as of either March 31, 2004 or 2003. The Companys foreign
subsidiaries also currently maintain various credit facilities aggregating
$82.5 million with banks in Hong Kong subject to annual review consisting of
the following: (i) two letter of credit facilities totaling $12.5. These
facilities are used for inventory purchases and require us to pledge
approximately $3.0 million for such availability and (ii) four back-to-back
credit facilities totaling $70 million of which one facility requires a
compensating cash balance of $1.5 million. These four back-to-back letters of
credit are for the benefit of our foreign subsidiaries, which is for the
establishment of back-to-back letters of credit with the Companys customers.
At March 31, 2004, there were $9.1 million and $5.2 million of letters of
credit outstanding under these credit facilities. A credit facility requires a
net worth covenant of the foreign subsidiary, which the Company was in
compliance with at March 31, 2004. Capital Expenditure and Other Commitments: As of March 31, 2004, there were no material capital expenditure
commitments and there were no substantial commitments for purchase orders
outside the normal purchase orders used to secure product for either segment. Employee Benefit Plan: The Company currently sponsors defined contribution 401(k) retirement
plans which are subject to the provisions of ERISA. Under the consumer
electronics segment plan, Emerson matches a percentage of the participants
contributions up to a specified amount. Under the sporting goods segment plan,
SSG has not matched a percentage of the participants contributions for the
last three fiscal years. The combined contributions to the plans for fiscal
2004, 2003 and 2002 were $103,000, $72,000, and $56,000, respectively. 71




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EMERSON RADIO CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   (Continued) NOTE 9  STOCK BASED COMPENSATION: Consumer Electronics Segment: In July 1994, Emerson adopted a Stock Compensation Program (Program).
The maximum aggregate number of shares of common stock available pursuant to
the Program is 2,000,000 shares and the Program is comprised of four parts 
the Incentive Stock Option Plan, the Supplemental Stock Option Plan, the Stock
Appreciation Rights Plan and the Stock Bonus Plan. A summary of transactions
during the last three years is as follows: Number of
    
    Weighted AverageShares
    
    Exercise PriceOutstanding  March 31, 2001
    
    
    1,488,334
    
    
    $
    1.04Granted
    
    
    26,000
    
    
    
    1.50Canceled
    
    
    (13,334
    )
    
    
    1.00Outstanding  March 31, 2002
    
    
    1,501,000
    
    
    
    1.05Exercised
    
    
    (366,397
    )
    
    
    1.00Canceled
    
    
    (75,000
    )
    
    
    1.00Outstanding  March 31, 2003
    
    
    1,059,603
    
    
    
    1.07Exercised
    
    
    (277,269
    )
    
    
    1.00Canceled
    
    
    
    
    
    
    Outstanding  March 31, 2004
    
    
    782,334
    
    
    $
    1.09Exercisable at March 31, 2004
    
    
    773,666
    
    
    $
    1.09
 The following table provides additional information as to the options
outstanding under the Stock Compensation Program as of March 31, 2004: Options Outstanding
    
    Options ExercisableWeighted
    
    WeightedAverage
    
    Average
    
    
    
    
    
    WeightedRange of
    
    Amount
    
    Remaining
    
    Exercise
    
    Amount
    
    AverageExercise Prices
    
    Outstanding
    
    Contractual Life
    
    Price
    
    Exercisable
    
    Exercise Price$1.00 - $1.00
    
    
    156,334
    
    
    
    5.1
    
    
    $
    1.00
    
    
    
    156,334
    
    
    $
    1.00$1.10 - $1.10
    
    
    600,000
    
    
    
    0.3
    
    
    
    1.10
    
    
    
    600,000
    
    
    
    1.10$1.50 - $1.50
    
    
    26,000
    
    
    
    7.0
    
    
    
    1.50
    
    
    
    17,332
    
    
    
    1.50782,334
    
    
    
    1.4
    
    
    
    1.09
    
    
    
    773,666
    
    
    
    1.09
 Subject to the terms set forth in each option agreement, generally, the
term of each option is ten years, except for options issued to any person who
owns more than 10% of the voting power of all classes of capital stock, for
which the term is five years. Unless otherwise provided, options may not be exercised during the first
year after the date of the grant. Thereafter, each option becomes exercisable
on a pro rata basis on 72




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EMERSON RADIO CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   (Continued) each of the first through third anniversaries of the date of the grant. The
exercise price of options granted must be equal to, or greater than the fair
market value of the shares on the date of the grant, except that the option
price with respect to an option granted to any person who owns more than 10% of
the voting power of all classes of capital stock shall not be less than 110% of
the fair market value of the shares on the date of the grant. As of March 31,
2004, there were a total of 782,334 options outstanding with exercise prices
ranging from $1.00 per share to $1.50 per share. As of March 31, 2004,
773,666 of the total options outstanding were fully vested with 8,668 options
vesting through April 2004. At March 31, 2004, 2003 and 2002, the weighted
average exercise price of exercisable options under the Program was $1.09,
$1.07 and $1.05, respectively. In October 1994, Emersons Board of Directors adopted, and the
stockholders subsequently approved, the 1994 Non-Employee Director Stock Option
Plan. The maximum number of shares of Common Stock available under such plan is
300,000 shares. A summary of transactions under the plan for the three years
ending March 31, 2004 is as follows: Number of
    
    Weighted AverageShares
    
    Exercise PriceOutstanding: March 31,
2001, and March
31, 2002
    
    
    175,000
    
    
    $
    1.00Exercised
    
    
    (41,667
    )
    
    
    1.00Outstanding: March 31, 2003
    
    
    133,333
    
    
    
    1.00Exercised
    
    
    (8,333
    )
    
    
    1.00Outstanding  March 31,
2004
    
    
    125,000
    
    
    $
    1.00Exercisable at March 31, 2004
    
    
    125,000
    
    
    $
    1.00
 The following table provides additional information as to the options
outstanding under the Non-Employee Director Stock Option Plan as of March 31,
2004: Options Outstanding
    
    Options ExercisableWeighted
    
    WeightedAverage
    
    Average
    
    
    
    
    
    WeightedAmount
    
    Remaining
    
    Exercise
    
    Amount
    
    AverageRange of Exercise Prices
    
    Outstanding
    
    Contractual Life
    
    Price
    
    Exercisable
    
    Exercise Price$1.00 - $1.00
    
    
    125,000
    
    
    
    2.6
    
    
    $
    1.00
    
    
    
    125,000
    
    
    $
    1.00125,000
    
    
    
    2.6
    
    
    
    1.00
    
    
    
    125,000
    
    
    
    1.00
 All options granted under the Non-Employee director Stock Option Plan
during the fiscal years ending March 31, 2002, 2003 and 2004 were at exercise
prices equal to or greater than the fair market value of Emersons stock on the
date of the grant. 73




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EMERSON RADIO CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   (Continued) The provisions for the 1994 Non-Employee Director Stock Option Plan for
exercise price, term and vesting schedule are, for the most part, the same as noted above for the
Stock Compensation Program. Sporting Goods Segment: SSG has a stock option plan that provides up to 2,000,000 shares of common
stock for awards of incentive and non-qualified stock options to directors and
employees (the SSG Plan). Under the SSG Plan, the exercise price of options
will not be less than: the fair market value of the common stock at the date of
grant; or not less than 110% of the fair market value for incentive stock
options granted to certain employees, as more fully described in the Amended
and Restated Stock Option Plan. Options expire ten years from the grant date,
or five years from the grant date for incentive stock options granted to
certain employees, or such earlier date as determined by the Board of Directors
of SSG (or a Stock Option Committee comprised of members of the Board of
Directors). A summary of transactions under the SSG Plan for the fiscal year ending
March 31, 2004 is as follows: Number of
    
    Weighted AverageShares
    
    Exercise PriceOutstanding  March 31, 2001
    
    
    906,929
    
    
    $
    7.65Granted
    
    
    29,375
    
    
    
    1.30Canceled
    
    
    (10,125
    )
    
    
    8.09Outstanding  March 31, 2002
    
    
    926,179
    
    
    
    7.45Granted
    
    
    19,375
    
    
    
    1.69Canceled
    
    
    (637,112
    )
    
    
    7.64Outstanding  March 31, 2003
    
    
    308,442
    
    
    
    6.70Granted
    
    
    11,250
    
    
    
    1.73Canceled
    
    
    (77,875
    )
    
    
    6.38Outstanding
 March 31, 2004
    
    
    241,817
    
    
    $
    6.57Exercisable at March 31, 2004
    
    
    235,150
    
    
    $
    6.70
 The following table provides additional information as to the options
outstanding under the SSG Plan as of March 31, 2004: Options Outstanding
    
    Options ExercisableWeighted
    
    WeightedAverage
    
    Average
    
    
    
    
    
    WeightedAmount
    
    Remaining
    
    Exercise
    
    Amount
    
    AverageRange of Exercise Prices
    
    Outstanding
    
    Contractual Life
    
    Price
    
    Exercisable
    
    Exercise Price$0.95 - $2.00
    
    
    49,375
    
    
    
    8.39
    
    
    $
    1.52
    
    
    
    42,708
    
    
    $
    1.49$6.13 - $7.50
    
    
    77,192
    
    
    
    4.22
    
    
    
    7.04
    
    
    
    77,192
    
    
    
    7.04$7.88 - $9.44
    
    
    115,250
    
    
    
    5.21
    
    
    
    8.41
    
    
    
    115,250
    
    
    
    8.41241,817
    
    
    
    5.21
    
    
    
    6.57
    
    
    
    235,150
    
    
    $
    6.70
 74




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EMERSON RADIO CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   (Continued) All options granted under the SSG Plan during the fiscal year ending March
31, 2004 were at exercise prices equal to or greater than the fair market value
of SSGs stock on the date of the grant. NOTE 10  SHAREHOLDERS EQUITY: Common Shares: Authorized common shares consists of 75,000,000 shares of common shares,
par value $.01 per share, of which, 26,630,383 and 27,413,089 shares were
outstanding as of March 31, 2004 and 2003, respectively. Shares held in
treasury at March 31, 2004, and 2003 were 25,679,967 and 24,568,342,
respectively. Common Stock Repurchase Program: In January 2000, September 2001 and September 2003, Emersons Board
authorized share repurchase programs for 5,000,000 shares, 1,000,000 shares,
and 2,000,000 shares, respectively. In fiscal 2004, the Company repurchased
1,111,625 shares for $4,157,000. In fiscal 2003, the Company repurchased
159,300 shares for $197,000, and in fiscal 2002 repurchased 177,500 shares for
$236,000, pursuant to the programs. The shares were repurchased in open market
transactions within guidelines set forth by Rule 10b-18 of the Securities and
Exchange Act of 1934 and were funded by working capital. Series A Convertible Preferred Stock: The Company has issued and outstanding 3,677 shares of Series A
Convertible Preferred Stock, (Preferred Stock) $.01 par value, with a face
value of $3,677,000, which had no market value as of March 31, 2004.
Effective March 31, 2002 the conversion feature of the Preferred shares
expired. Dividends accrued through March 31, 2002 were reversed into
shareholders equity. The Preferred Stock is non-voting and was convertible
into Common Stock through March 31, 2002, at a price per share of Common Stock
equal to 80% of the defined average market value of a share of Common Stock on
the date of conversion. Effective March 31, 2001, dividends were no longer
accrued on these shares. Warrants: On August 1, 2002, in connection with a consulting agreement, Emerson
granted 200,000 warrants with an exercise price of $2.20, of which 100,000
warrants vested after six months and 100,000 warrants vested one year from date
of grant. The warrants were valued using the Black-Scholes option valuation
model and were charged to earnings over the related service period of the
consulting agreement with approximately $420,000 and $49,000 being charged to
operations for fiscal 2004 and 2003, respectively. During February 2003,
100,000 of these warrants were exercised, and accordingly the Company issued
100,000 shares of common stock. In November 2003, the remaining 75




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EMERSON RADIO CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 100,000 of these warrants were exercised under a cashless exercise and 45,544
shares of common stock were issued. On October 7, 2003, in connection with a consulting arrangement, Emerson
granted 50,000 warrants with an exercise price of $5.00 per share. These
warrants were valued using the Black-Scholes option valuation model, which
resulted in $90,500 being charged to earnings during fiscal 2004. As of March
31, 2004, these warrants had not been exercised. The warrants listed above were issued in transactions not involving a
public offering and exempt from registration under Section 4(2) of the
Securities Act of 1933, as amended. NOTE 11  NET EARNINGS PER SHARE: The following table sets forth the computation of basic and diluted
earnings per share for the years ended March 31, 2004, March 31, 2003, and
March 31, 2002: (In thousands, except per share amount) 2004
    
    2003
    
    2002Numerator:Net earnings (loss) before discontinued
operations and cumulative effect of change
in accounting principle   for basic and
diluted
earnings per shares
    
    $
    (3,735
    )
    
    $
    26,206
    
    
    $
    18,649Denominator:Denominator for basic earnings per share 
weighted average shares
    
    
    27,227
    
    
    
    27,716
    
    
    
    31,298Effect of dilutive securities:Preferred shares
    
    
    
    
    
    
    
    
    
    
    3,531Options
    
    
    
    
    
    
    924
    
    
    
    452Convertible debentures
    
    
    
    
    
    
    
    
    
    
    5,204Denominator for diluted earnings per share 
weighted average shares and assumed
conversions
    
    
    27,227
    
    
    
    28,640
    
    
    
    40,485Basic earnings (loss) per shareContinuing operations
    
    $
    (.14
    )
    
    $
    .95
    
    
    $
    .60Discontinued operations
    
    
    .10
    
    
    
    .03
    
    
    
    .02Cumulative effect of change in accounting
principle
    
    
    
    
    
    
    (.20
    )
    
    
    Basic earnings (loss) per share
    
    $
    (.04
    )
    
    $
    .78
    
    
    $
    .62Diluted earnings (loss) per shareContinuing operations
    
    $
    (.14
    )
    
    $
    .91
    
    
    $
    .50Discontinued operations
    
    
    .10
    
    
    
    .03
    
    
    
    .02Cumulative effect of change in accounting
principle
    
    
    
    
    
    
    (.19
    )
    
    
    Diluted earnings (loss) per share
    
    $
    (.04
    )
    
    $
    .75
    
    
    $
    .52
 76




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EMERSON RADIO CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 12  LICENSE AGREEMENTS: Emerson has several license agreements that allow licensees to use its
trademarks for the manufacture and/or the sale of consumer electronics and
other products and are referred to as outbound licenses. These license
agreements (i) allow the licensee to use Emersons trademarks by a specific
product category, or by a specific geographic area that primarily includes some
or all of the countries located in North America, South America, Mexico and
parts of Europe, or by a specific customer base, or by any combination of the
above, or any other category that might be defined in the license agreement,
(ii) may be subject to renewal at the initial expiration of the agreements and are
governed by the laws of the United States and (iii) have expiration dates
ranging from November 2004 through January 2007. License revenues recognized
and earned in fiscal 2004, 2003, and 2002 were approximately $10,973,000,
$10,388,000, and $6,952,000, respectively. Emerson records licensing revenues
as earned over the term of the related agreements. Effective January 1, 2001, Emerson entered into a license agreement
(Video License Agreement) with Funai Corporation, Inc. (Funai), which was
amended to extend the Video License Agreement to December 31, 2005. The Video
License Agreement provides that Funai will manufacture, market, sell and
distribute specified products bearing the [Emerson logo] trademark to customers in the U.S.
and Canadian markets. Under the terms of the agreement, Emerson will receive
non-refundable minimum annual royalty payments of $4.3 million each calendar
year and a license fee on sales of product subject to the Video License
Agreement in excess of the minimum annual royalties. During fiscal 2004, 2003
and 2002, revenues of $8,759,000, $8,520,000 and $5,624,000 respectively, were
recorded under this agreement. NOTE 13 LEGAL PROCEEDINGS: Putative Class Actions Between September 4, 2003 and October 30, 2003, several putative class
action lawsuits were filed in the United States District Court for the District
of New Jersey against Emerson and Mssrs. Geoffrey Jurick, Kenneth Corby and
John Raab (the Individual Defendants) on behalf of purchasers of our publicly
traded securities who bought shares between January 29, 2003 and August 12,
2003 (the Class Period.) On December 17, 2003, the Court entered a Joint
Stipulation and Order consolidating these putative class actions under the
caption In Re Emerson Radio Corp. Securities Litigation, 03cv4201 (JLL) (the
Consolidated Action.) Further to that Stipulation and Order, lead plaintiff
was appointed and co-lead counsel and co-liaison counsel were approved by the
Court in the Consolidated Action. Consistent with the Stipulation and Order,
the plaintiffs filed an Amended Consolidated Complaint (the Amended
Complaint) that, among other things, added Jerome Farnum, one of Emersons
directors, as a defendant in the litigation. Generally, the Amended Complaint alleges that Emerson and the Individual
Defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of
1934, and Rule 10b-5 promulgated there under, by (i) issuing certain positive
statements during the Class Period regarding Emersons 77




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EMERSON RADIO CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) ability to replace lost revenues attributable to our Hello Kitty® license and
(ii) omitting to disclose that Emerson suffered allegedly soured relationships
with its largest retail customers. The Amended Complaint further alleges that
these statements were materially false and misleading when made because Emerson
allegedly misrepresented and omitted certain adverse facts which then existed
and disclosure of which was necessary to make the statements not false and
misleading. Emerson, and the Individual Defendants intend to defend the
lawsuit vigorously. Other Matters The Company is a party to various other litigation matters, in most cases
involving ordinary and routine claims incidental to its business. The Company
cannot estimate with certainty our ultimate legal and financial liability with
respect to such pending litigation matters. However, The Company believes,
based on its examination of such matters, that its ultimate liability will not
have a material adverse effect on its financial position, results or operations
or cash flows. NOTE 14 BUSINESS SEGMENT INFORMATION AND MAJOR CUSTOMERS: The Company has two business segments, the consumer electronics business
and the sporting goods segment. Operations in these business segments are
summarized below by geographic area (in thousands): Year Ended March 31, 2004U.S.
    
    Foreign
    
    ConsolidatedSales from external customers  consumer electronics
    
    $
    172,720
    
    
    $
    7,187
    
    
    $
    179,907Sales from external customers  sporting goods
    
    
    83,558
    
    
    
    309
    
    
    
    83,867Total sales from external customers
    
    $
    256,278
    
    
    $
    7,496
    
    
    $
    263,774Income (loss) before income taxes and
cumulative effect of change in
accounting principle  consumer electronics
    
    $
    2,867
    
    
    $
    (104
    )
    
    $
    2,763Loss before income taxes and cumulative
effect of change in accounting principle
 sporting goods
    
    
    (4,348
    )
    
    
    
    
    
    
    (4,348
    )Total loss before income taxes
and cumulative effect of change in
accounting principle
    
    $
    (1,481
    )
    
    $
    (104
    )
    
    $
    (1,585
    )Identifiable assets  consumer electronics
    
    $
    62,288
    
    
    $
    9,688
    
    
    $
    71,976Identifiable assets  sporting goods
    
    
    46,602
    
    
    
    
    
    
    
    46,602Total identifiable assets
    
    $
    108,890
    
    
    $
    9,688
    
    
    $
    118,578
 78




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##### Table of Contents



EMERSON RADIO CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Year Ended March 31, 2003U.S.
    
    Foreign
    
    ConsolidatedSales from external customers  consumer
electronics
    
    $
    240,580
    
    
    $
    4,587
    
    
    $
    245,167Sales from external customers   sporting
goods
    
    
    84,891
    
    
    
    257
    
    
    
    85,148Total sales from external customers
    
    $
    325,471
    
    
    $
    4,844
    
    
    $
    330,315Income (loss) before income taxes and
cumulative effect of change in
accounting principle  consumer
electronics
    
    $
    19,343
    
    
    $
    (17
    )
    
    $
    19,326Loss before income taxes and cumulative
effect of change in accounting
principle
 sporting goods
    
    
    (2,402
    )
    
    
    
    
    
    
    (2,402
    )Total income (loss) before income
taxes and cumulative effect of change in
accounting principle
    
    $
    16,941
    
    
    $
    (17
    )
    
    $
    16,924Identifiable assets  consumer electronics
    
    $
    60,375
    
    
    $
    9,504
    
    
    $
    69,879Identifiable assets  sporting goods
    
    
    64,683
    
    
    
    
    
    
    
    64,683Total identifiable assets
    
    $
    125,058
    
    
    $
    9,504
    
    
    $
    134,562
 Year Ended March 31, 2002U.S.
    
    Foreign
    
    ConsolidatedSales from external customers  consumer
electronics
    
    $
    208,127
    
    
    $
    4,320
    
    
    $
    212,447Sales from external customers  sporting
goods
    
    
    84,137
    
    
    
    591
    
    
    
    84,728Total sales from external customers
    
    $
    292,264
    
    
    $
    4,911
    
    
    $
    297,175
 79




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EMERSON RADIO CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Income (loss) before income taxes and
cumulative effect of change in
accounting principle  consumer
electronics
    
    $
    15,400
    
    
    $
    (1
    )
    
    $
    15,399Loss before income taxes and cumulative
effect of change in accounting
principle
 sporting goods
    
    
    (4,341
    )
    
    
    
    
    
    
    (4,341
    )Total income (loss) before income
taxes
and cumulative effect of change in
accounting principle
    
    $
    11,059
    
    
    $
    (1
    )
    
    $
    11,058Identifiable assets  consumer electronics
    
    $
    46,395
    
    
    $
    22,137
    
    
    $
    68,532Identifiable assets  sporting goods
    
    
    67,307
    
    
    
    
    
    
    
    67,307Total identifiable assets
    
    $
    113,702
    
    
    $
    22,137
    
    
    $
    135,839
 Identifiable assets are those assets used in operations in each geographic
area. In addition to operating assets, at March 31, 2004, 2003, and 2002,
there were non-operating assets of $11,437,000, $9,492,000 and $9,136,000,
respectively, located in foreign countries. The Companys net sales to one customer aggregated approximately 25%, 25%
and 23% of consolidated net revenues for the years ended March 31, 2004, 2003,
and 2002, respectively. The Companys net sales to another customer
aggregated 15%, 17%, and 20% for the years ended March 31, 2004, 2003, and
2002, respectively. The trade accounts receivable balance of both customers,
net of specific reserves was not material as of March 31, 2004. The Companys
net sales to a third customer, a customer that filed for voluntary bankruptcy
protection in fiscal 2002, that has since emerged from bankruptcy, aggregated
4%, 12%, and 7% for the years ended March 31, 2004, 2003 and 2002. The trade
accounts receivable balance, net of specific reserves for the third customer,
approximated 4% and 5%, of consolidated trade accounts receivable as of March
31, 2004 and 2003. The Company has policies and procedures to limit its credit
risk related to this and other customers. NOTE 15  DERIVATIVE FINANCIAL INSTRUMENTS: As of March 31, 2003, the Company had outstanding an interest swap
agreement that converts $10 million of its variable rate Loan Agreement to a
fixed rate instrument through 2004. This swap agreement was designated as a
cash flow hedge and the change in fair value of the hedge is recorded in other
comprehensive income and reclassified into earnings in the same period during
which the hedged transaction affected earnings. During fiscal 2003, the
Company recorded a charge of approximately $100,000 related to a portion of the
cash flow hedge. Subsequent to March 31, 2003, the Company terminated the
interest rate swap agreement. 80




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EMERSON RADIO CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 16  QUARTERLY INFORMATION (UNAUDITED): The following table sets forth certain information regarding the Companys
results of operations for each full quarter within the fiscal years ended March
31, 2004 and March 31, 2003, with amounts in thousands, except for per share
data. Due to rounding, quarterly amounts may not fully sum to yearly amounts.
(In thousands, except per share data). Consolidated Statement
    
    Fiscal 2004
    
    Fiscal 2003Of Operations
    
    1st Qrt
    
    2nd Qrt
    
    3rd Qrt
    
    4th Qrt
    
    1st Qrt
    
    2nd Qrt
    
    3rd Qrt
    
    4th QrtNet revenues
    
    $
    54,171
    
    
    $
    78,873
    
    
    $
    76,345
    
    
    $
    54,385
    
    
    $
    79,259
    
    
    $
    110,674
    
    
    $
    86,553
    
    
    $
    53,829Operating income (loss)
    
    
    (31
    )
    
    
    2,087
    
    
    
    907
    
    
    
    (3,995
    )
    
    
    5,238
    
    
    
    8,612
    
    
    
    4,418
    
    
    
    417Income (loss ) before
income taxes and
cumulative effect of
changes in accounting
principle
    
    
    (507
    )
    
    
    1,823
    
    
    
    313
    
    
    
    (3,214
    )
    
    
    4,355
    
    
    
    7,816
    
    
    
    5,116
    
    
    
    (363
    )Income (loss) from
continuing operations
    
    
    (440
    )
    
    
    781
    
    
    
    (340
    )
    
    
    (3,736
    )
    
    
    2,454
    
    
    
    5,666
    
    
    
    3,186
    
    
    
    14,900Income (loss) from
Discontinued
operations
    
    
    (5
    )
    
    
    (100
    )
    
    
    3,153
    
    
    
    (387
    )
    
    
    206
    
    
    
    286
    
    
    
    92
    
    
    
    256Cumulative effect of
change in accounting
principle
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,546
    )
    
    
    
    
    
    
    
    
    
    
    Net income (loss)
    
    
    (445
    )
    
    
    681
    
    
    
    2,813
    
    
    
    (4,123
    )
    
    
    (2,886
    )
    
    
    5,952
    
    
    
    3,278
    
    
    
    15,156Basic net income (loss)
Per share :Income (loss)
continuing
Operations
    
    $
    (.02
    )
    
    $
    .03
    
    
    $
    (.01
    )
    
    $
    (.14
    )
    
    $
    .08
    
    
    $
    .21
    
    
    $
    .12
    
    
    $
    .54Discontinued
Operations
    
    
    
    
    
    
    (.01
    )
    
    
    .11
    
    
    
    (.01
    )
    
    
    .01
    
    
    
    .01
    
    
    
    
    
    
    
    .01Cumulative effect of
change in
accounting
principle
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (.19
    )
    
    
    
    
    
    
    
    
    
    
    $
    (.02
    )
    
    $
    .02
    
    
    $
    .10
    
    
    $
    (.15
    )
    
    $
    (.10
    )
    
    $
    .22
    
    
    $
    .12
    
    
    $
    .55
 81




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EMERSON RADIO CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Consolidated Statement
    
    Fiscal 2004
    
    Fiscal 2003Of Operations
    
    1st Qrt
    
    2nd Qrt
    
    3rd Qrt
    
    4th Qrt
    
    1st Qrt
    
    2nd Qrt
    
    3rd Qrt
    
    4th QrtDiluted net income
(loss) per share:Income (loss)
continuing
Operations
    
    $
    (.02
    )
    
    $
    .03
    
    
    $
    (.01
    )
    
    $
    (.14
    )
    
    $
    .08
    
    
    $
    .20
    
    
    $
    .12
    
    
    $
    .52Discontinued
Operations
    
    
    
    
    
    
    (.01
    )
    
    
    .11
    
    
    
    (.01
    )
    
    
    .01
    
    
    
    .01
    
    
    
    
    
    
    
    .01Cumulative effect of
change in
accounting
principle
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (.16
    )
    
    
    
    
    
    
    
    
    
    
    $
    (.02
    )
    
    $
    .02
    
    
    $
    .10
    
    
    $
    (.15
    )
    
    $
    (.07
    )
    
    $
    .21
    
    
    $
    .12
    
    
    $
    .53Weighted average shares
Outstanding  basic
    
    
    27,416
    
    
    
    27,560
    
    
    
    27,189
    
    
    
    26,741
    
    
    
    29,444
    
    
    
    26,948
    
    
    
    27,134
    
    
    
    27,349Weighted average shares
Outstanding  diluted
    
    
    27,416
    
    
    
    28,428
    
    
    
    27,189
    
    
    
    26,741
    
    
    
    35,025
    
    
    
    27,951
    
    
    
    28,274
    
    
    
    28,526
 The first quarter of fiscal 2003 was restated as a result of the Companys
adoption of SFAS No. 142 and reflects the non-cash charge of approximately $5.5
million to reduce the carrying value of goodwill. See Note 5  Goodwill and
Other Intangible Assets of Notes to the Consolidated Financial Statements for
further information. During the fourth quarter of fiscal 2004, management
continued to review its various reserves and expense accruals. As a result of
such review, the consumer electronics segment recorded an additional deferred
tax provision of $550,000. In addition, the sporting goods segment recorded an
increase in inventory reserves totaling $998,000, $335,000 of which related to
discontinued operations, accruals related to bankrupt freight carriers of
$478,000, allowances for uncollectable trade receivables of $297,000, and
professional fees of $303,000. NOTE 17  DISCONTINUED OPERATIONS: From July 2003 through October 2003, certain of SSGs team dealer
locations were discontinued. In November 2003, SSG sold all of the issued and
outstanding capital stock of ATEC. These closures and sales of assets, and
related discontinued operations resulted in income, net of tax, of
approximately $2.7 million for the fiscal year ended March 31, 2004. On
November 18, 2003, SSG sold all of the issued and outstanding capital stock of
ATEC, resulting in a net gain of approximately $3.8 million, after a related
deferred income tax charge of $2.2 million. The results of these transactions
are included in discontinued operations in the accompanying Consolidated
Statement of Operations for the fiscal year ended March 31, 2004. The
financial statements for fiscal 2002 and 2003 have been reclassified to reflect
such discontinued results on a comparable basis. 82




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EMERSON RADIO CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following table summarizes the results of these discontinued
operations, net of related income taxes, as applicable (in thousands). 2004
    
    2003
    
    2002Net revenuesATEC
    
    $
    6,184
    
    
    $
    10,189
    
    
    $
    9,763Net revenuesTeam Dealers
    
    
    3,043
    
    
    
    7,280
    
    
    
    9,110Net revenues  Total
    
    
    9,227
    
    
    
    17,469
    
    
    
    18,873Income from operations  ATEC
    
    
    478
    
    
    
    1,630
    
    
    
    1,386Loss from operations  Team Dealers
    
    
    (724
    )
    
    
    (790
    )
    
    
    (628
    )Loss on sale of Team Dealers
    
    
    (885
    )
    
    
    
    
    
    
    Gain on sale of ATEC, net of tax
    
    
    3,792
    
    
    
    
    
    
    
    Total discontinued operations, net
    
    $
    2,661
    
    
    $
    840
    
    
    $
    758
 The following table summarizes the balance sheet of these discontinued
operations as of March 31, 2003 (in thousands). March 31, 2003Current assets
    
    $
    10,606Total assets
    
    
    11,032Current liabilities
    
    
    2,741Total liabilities
    
    
    2,758Total shareholders equity
    
    
    8,274
 83




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##### Table of Contents



Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. As previously reported in a Form 8-K dated April 2, 2004, on March 31,
2004, we retained the services of BDO Seidman LLP as our independent auditors
to replace our former independent auditors, Ernst & Young LLP. This engagement
and replacement was approved by our Audit Committee. During our two most
recent fiscal years, and any subsequent interim period prior to March 31, 2004,
we did not consult with BDO Seidman LLP regarding any matters noted in Items
304(a) of Regulation S-K. BDO Seidman LLP has provided tax services to us
during the fiscal years ending March 31, 2002, 2003 and 2004 and is expected to
continue to provide such services to us. There have been no disagreements within the meaning of Item
304(a)(1)(iv) of Regulation S-K, or any events of the type listed in Item
304(a)(1)(v)(A) through (D) of Regulation S-K, involving Ernst & Young that
occurred within our two most recent fiscal years and the interim period prior
to March 31, 2004. Ernst & Youngs reports on our financial statements for the
past two fiscal years did not contain any adverse opinions or disclaimers of
opinion, and were not qualified or modified as to uncertainty, audit scope or
accounting principles. We provided Ernst & Young with a copy of the disclosures made pursuant to
the Form 8-K (which disclosures are consistent with the disclosures noted
above) and Ernst & Young furnished the Company with a letter addressed to the
Commission stating that it agrees with the statements made by the Company in
the Form 8-K filing, a copy of which was filed as an exhibit to the Form 8-K. 
 Item 9A. CONTROLS AND PROCEDURES (a) Disclosure controls and procedures. As of the end of the period covered by this Annual Report on Form 10-K, we
carried out an evaluation, with the participation of our management, including
our Chief Executive Officer and Chief Financial Officer, of the effectiveness
of our disclosure controls and procedures pursuant to Securities Exchange Act
Rule 13a-15. Based upon that evaluation, our Chief Executive Officer and Chief
Financial Officer concluded that our disclosure controls and procedures are
effective in ensuring that information required to be disclosed by us in the
reports that we file or submit under the Securities Exchange Act is recorded,
processed, summarized and reported, within the time periods specified in the
SECs rules and forms. (b) Changes in internal controls over financial reporting. There have been no changes in our internal control over financial reporting
that occurred during our last fiscal quarter to which this Annual Report on
Form 10-K relates that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting. 84




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##### Table of Contents



PART III 
 Item 10. DIRECTORS AND EXECUTIVE OFFICERS The information required is incorporated herein by reference to Emersons
definitive Proxy Statement to be filed with the Securities and Exchange
Commission on or before July 29, 2004. 
 Item 11. EXECUTIVE COMPENSATION The information required is incorporated herein by reference to Emersons
definitive Proxy Statement to be filed with the Securities and Exchange
Commission on or before July 29, 2004. 
 Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The information required is incorporated herein by reference to Emersons
definitive Proxy Statement to be filed with the Securities and Exchange
Commission on or before July 29, 2004. 
 Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required is incorporated herein by reference to Emersons
definitive Proxy Statement to be filed with the Securities and Exchange
Commission on or before July 29, 2004. 
 Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES The information required is incorporated herein by reference to Emersons
definitive Proxy Statement to be filed with the Securities and Exchange
Commission on or before July 29, 2004. 
 PART IV 
 Item 15. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K  (a)
    
    Financial Statements and Schedules. See Item 8(b)
    
    Reports on Form 8-K  During the three month period ended
March 31, 2004, the
following Form 8-Ks were filed:  Current report on Form 8-K, dated February 19, 2004, furnishing
the press release announcing the Companys financial results for
the third quarter ended December 31, 2004.Current report on Form 8-K, dated April 2, 2004, announcing the
change in the Companys Certifying Accountant. 85




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##### Table of Contents



(c)
    
    Exhibits Exhibit Number3.1
    
    Certificate of Incorporation of Emerson (incorporated by
reference to Exhibit (3) (a) of Emersons Registration Statement on
Form S-1, Registration No. 33-53621, declared effective by the SEC on
August 9, 1994).3.2
    
    Amended and Restated Certificate of Incorporation of Sport Supply
Group, Inc. (incorporated by reference to Exhibit 4.1 of Sport
Supplys Registration Statement on Form S-8, Registration No.
33-80028).3.3
    
    Certificate of Amendment of Amended and Restated Certificate of
Incorporation of Sport Supply Group, Inc. (incorporated by reference
to Exhibit 4.1 of Sport Supplys Registration Statement on Form S-8,
Registration No. 33-80028).3.4
    
    Certificate of Designation for Series A Preferred Stock
(incorporated by reference to Exhibit (3) (b) of Emersons
Registration Statement on Form S-1, Registration No. 33-53621,
declared effective by the SEC on August 9, 1994).3.5
    
    Amendment dated February 14, 1996 to the Certificate of
Incorporation of Emerson (incorporated by reference to Exhibit (3) (a)
of Emersons Quarterly Report on Form 10-Q for the quarter ended
December 31, 1995).3.6
    
    By-Laws of Emerson adopted March 1994 (incorporated by reference
to Exhibit (3) (e) of Emersons Registration Statement on Form S-1,
Registration No. 33-53621, declared effective by the SEC on August 9,
1994).3.7
    
    Amendment dated November 28, 1995 to the By-Laws of Emerson
adopted March 1994 (incorporated by reference to Exhibit (3) (b) of
Emersons Quarterly Report on Form 10-Q for the quarter ended December
31, 1995).3.8
    
    Amended and Restated Bylaws of Sport Supply Group, Inc.
(incorporated by reference to Exhibit 3.2 of Sport Supplys Annual
Report on Form 10-K for the year ended November 1, 1996).10.4
    
    Stipulation of Settlement and Order dated June 11, 1996 by and
among the Official Liquidator of Fidenas International Bank Limited,
Petra Stelling, Barclays Bank PLC, the Official Liquidator of Fidenas
Investment Limited, Geoffrey P. Jurick, Fidenas International Limited,
L.L.C., Elision International, Inc., GSE Multimedia Technologies
Corporation and Emerson. (incorporated by reference to Exhibit 10(af)
of Emersons Annual Report on Form 10-K for the year ended March 31,
1996.)10.5
    
    Pledge Agreement dated as of February 4, 1997 by Fidenas
International Limited, L.L.C. (FIN) in favor of TM Capital Corp.
(incorporated by reference to Exhibit (10) (a) of Emersons Quarterly
Report on Form 10-Q for the quarter ended December 31, 1996).
 86




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##### Table of Contents



10.6
    
    Registration Rights Agreement dated as of February 4, 1997 by
and among Emerson, FIN, the Creditors, FIL and TM Capital Corp.
(incorporated by reference to Exhibit (10) (b) of Emersons Quarterly
Report on Form 10-Q for the quarter ended December 31, 1996).10.7
    
    Securities Purchase Agreement dated as of November 27, 1996, by
and between Sport Supply Group, Inc. (SSG) and Emerson (incorporated
by reference to Exhibit (2)(a) of Emersons Current Report on Form 8-K
dated November 27, 1996).10.9
    
    Form of Registration Rights Agreement by and between SSG and
Emerson (incorporated by reference to Exhibit (4)(b) of Emersons
Current Report on Form 8-K dated November 27, 1996).10.12
    
    License Agreement effective as of January 1, 2001 by and between
Funai Corporation and Emerson (incorporated by reference to Exhibit
(10) (z) of Emersons Quarterly Report on Form 10-Q for the quarter
ended September 30, 2000).10.12.1
    
    First Amendment to License Agreement dated February 19, 2002 by and
between Funai Corporation and Emerson (incorporated by reference to
Exhibit (10.12.1) of Emersons Annual Report on Form 10-K for the year
ended March 31, 2002).10.12.2
    
    Second Amendment to License Agreement effective August 1, 2002 by
and between Funai Corporation and Emerson (incorporated by reference
to Exhibit (10.12.2) of Emersons Quarterly Report on Form 10-Q for
the quarter ended September 30, 2002).10.12.3
    
    Third Amendment to License Agreement effective February 18, 2004 by
and between Funai Corporation and Emerson. *10.13
    
    Second Lease Modification dated as of May 15, 1998 between Hartz
Mountain, Parsippany and Emerson (incorporated by reference to Exhibit
(10) (v) of Emersons Annual Report on Form 10-K for the year ended
April 3, 1998).10.13.1
    
    Third Lease Modification made the 26 day of October, 1998 between
Hartz Mountain Parsippany and Emerson (incorporated by reference to
Exhibit (10) (b) of Emersons Quarterly Report on Form 10-Q for the
quarter ended October 2, 1998).10.13.2
    
    Fourth Lease Modification made the 12th day of February, 2003
between Hartz Mountain Parsippany and Emerson (incorporated by
reference to Exhibit (10.13.2) of Emersons Annual Report on Form
10-K for the year ended March 31, 2003).10.14.1
    
    Purchasing Agreement, dated March 5, 1999, between AFG-Elektronik
GmbH and Emerson Radio International Ltd. (incorporated by reference
to Exhibit (10) (aa) of Emersons Annual Report on Form 10-K for the
year ended April 2, 1999).
 87




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##### Table of Contents



10.15
    
    Second Amendment to Lease made the 10th day of June, 2004
between ProLogis and Sport Supply Group, Inc. *10.16
    
    Letter of Employment for Patrick Murray, dated May 3, 2001
(incorporated by reference to Exhibit 10.16 of Emersons Annual Report
on Form 10-K for the year ended March 31, 2001).10.17
    
    Form of Indemnification Agreement entered into between Sport
Supply and each of the directors of Sport Supply and Sport Supplys
General Counsel (incorporated by reference to Exhibit 10.3 of Sport
Supplys Registration Statement on Form S-1, Registration No.
33-39218).10.18
    
    Sport Supply Group, Inc. Amended and Restated Stock Option Plan
(incorporated by reference to Exhibit 4.1 of Sport Supplys
Registration Statement on Form S-1, Registration No. 33-27193).10.19
    
    Assignment and Assumption Agreement, dated to be effective as of
February 28, 1992, by and between Aurora and Sport Supply Group, Inc.
(incorporated by reference to Exhibit 10.27 of Sport Supplys Annual
Report on Form 10-K for the year ended 1991).10.21
    
    License Agreement, dated as of September 23, 1991, by and
between Proacq Corp. and Sport Supply Group, Inc. (incorporated by
reference to Exhibit 10.17 of Sport Supplys Annual Report on Form
10-K for the year ended 1991).10.22
    
    Sport Supply Group Employees Savings Plan dated June 1, 1993
(incorporated by reference to Exhibit 10.27 of Sport Supplys Annual
Report on Form 10-K for the year ended 1993).10.23
    
    Management Services Agreement dated July 1, 1997 to be effective
as of March 7, 1997 by and between Sport Supply Group, Inc. and
Emerson (incorporated by reference to Exhibit 10.2 of Sport Supplys
Quarterly Report on Form 10-Q for the quarter ended August 1, 1997 ).10.26
    
    Employment between Emerson Radio Corp. and John J. Raab,
effective as of September 1, 2001 (incorporated by reference to
Exhibit 10.26 of Emersons Quarterly Report on Form 10-Q for the
quarter ended September 30, 2001).10.26.1
    
    Employment Agreement between Emerson Radio Corp. and Elizabeth J.
Calianese McPartland, effective as of September 1, 2001 (incorporated
by reference to Exhibit 10.26.1 of Emersons Quarterly Report on Form
10-Q for the quarter ended September 30, 2001).10.26.2
    
    Letter re Employment Agreement between Emerson Radio Corp., Emerson
Radio International Ltd., Emerson Radio (Hong Kong) Limited and
Geoffrey P. Jurick, effective as of September 1, 2001 (incorporated by
reference to Exhibit 10.26.2 of Emersons Quarterly Report on Form
10-Q for the quarter ended September 30, 2001).
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10.26.3
    
    Employment Agreement between Emerson Radio Corp. and Kenneth A.
Corby, effective as of September 1, 2001 (incorporated by reference to
Exhibit 10.26.3 of Emersons Quarterly Report on Form 10-Q for the quarter ended
December 31, 2001).10.27
    
    Revolving Credit and Term Loan Agreement dated June 28, 2002
among Emerson Radio Corp., Majexco Imports, Inc., Emerson Radio (Hong
Kong) Ltd., and Emerson Radio International Ltd. Jointly and
Severally, and PNC Bank, National Association (incorporated by
reference to Exhibit 10.27 of Emersons Quarterly Report on Form 10-Q
for the quarter ended December 31, 2002).10.27.1
    
    Amendment to Revolving Credit and Term Loan Agreement (Number One)
dated November 7, 2003 among Emerson Radio Corp., Majexco Imports,
Inc., Emerson Radio (Hong Kong) Ltd., and Emerson Radio international
Ltd. Jointly and Severally, and PNC Bank, National Association
(incorporated by reference to Exhibit 10.27.1 of Emersons Quarterly
Report on Form 10-Q for the quarter ended December 31, 2003).10.27.2
    
    Amendment to Revolving Credit and Term Loan Agreement (Number Two)
dated December 31, 2003 among Emerson Radio Corp., Majexco Imports,
Inc., Emerson Radio (Hong Kong) Ltd., and Emerson Radio international
Ltd. Jointly and Severally, and PNC Bank, National Association
(incorporated by reference to Exhibit 10.27.2 of Emersons Quarterly
Report on Form 10-Q for the quarter ended December 31, 2003).10.28
    
    Common Stock Purchase Warrant Agreement entered into on August
1, 2002 by and between Emerson Radio Corp. and Further Lane Asset
Management LP (incorporated by reference to Exhibit 10.28 of Emersons
Quarterly Report on Form 10-Q for the quarter ended September 30,
2002).10.28.1
    
    Form of Common Stock Warrant Agreement entered into on October 7,
2003 by and between Emerson Radio Corp. and Ladenburg Thalmann & Co.,
Inc. (incorporated by reference to Exhibit 10.28.1 of Emersons
Quarterly Report on Form 10-Q for the quarter ended December 31,
2003).10.29
    
    Separation Agreement dated September 15, 2003 between SSG and
John P. Walker (incorporated by reference to Exhibit 10.1 of Sport
Supplys Quarterly Report on Form 10-Q for the quarter ended September
26, 2003).10.35
    
    Loan and Security Agreement dated March 27, 2001 by and between
Sport Supply Group, Inc. and Congress Financial Corporation
(incorporated by reference to Exhibit 10.29 of Sport Supplys Annual
Report on Form 10-K for the year ended March 30, 2001).
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10.35.1
    
    First Amendment to the Loan and Security Agreement dated October 1,
2002 by and Between Sport Supply Group, Inc. and Congress Financial
Corporation (incorporated by reference to Exhibit 10.2 of Sport
Supplys Quarterly Report on Form 10-Q for the quarter ended December
27, 2002).10.35.2
    
    Second Amendment to Loan and Security Agreement dated June 27, 2003
by and between Sport Supply Group, Inc. and Congress Financial
Corporation (incorporated by reference to Exhibit 10.1 of Sport
Supplys Quarterly Report on Form 10-Q for the quarter ended June 27,
2003).10.35.3
    
    Third Amendment to Loan and Security Agreement dated November 6,
2003 by and between Sport Supply Group, Inc. and Congress Financial
Corporation (incorporated by reference to Exhibit 10.4 of Sport
Supplys Quarterly Report on Form 10-Q for the quarter ended September
26, 2003).10.35.4
    
    Fourth Amendment to Loan and Security Agreement dated December 29,
2003 by and between Sport Supply Group, Inc. and Congress Financial
Corporation (incorporated by reference to Exhibit 10.1 of Sport
Supplys Quarterly Report on Form 10-Q for the quarter ended December
26, 2003).10.35.5
    
    Fifth Amendment to Loan and Security Agreement dated February 19,
2004 by and between Sport Supply Group, Inc. and Congress Financial
Corporation. *14.1
    
    Code of Ethics for Senior Financial Officers. *21.1
    
    Subsidiaries of the Company as of March 31, 2004. *23.1
    
    Consent of Independent Registered Public Accounting Firm  BDO Seidman, LLP. *23.2
    
    Consent of Independent Registered Public Accounting Firm  Ernst & Young, LLP. *31.1
    
    Certification of the Companys Chief Executive Officer pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.*31.2
    
    Certification of the Companys Chief Financial Officer pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.*32
    
    Certification of the Companys Chief Executive Officer and Chief
Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
   *
    
    Filed herewith. 90




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SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized. EMERSON RADIO CORP.By: /s/
    
    Geoffrey P. JurickGeoffrey P. JurickChairman of the BoardDated: June 28, 2004
 Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated. /s/ Geoffrey P. Jurick
Geoffrey P. Jurick
    
    Chairman of the Board,
Chief Executive Officer and
President
(Principal Executive Officer)
    
    June 28, 2004/s/ Kenneth A. Corby
Kenneth A. Corby
    
    Executive Vice President,
Chief Financial Officer
(Principal Finance and
Accounting Officer)
    
    June 28, 2004/s/ Robert H. Brown, Jr.
Robert H. Brown, Jr.
    
    Director
    
    June 28, 2004/s/ Peter G. Bünger
Peter G. Bünger
    
    Director
    
    June 28, 2004/s/ Jerome H. Farnum
Jerome H. Farnum
    
    Director
    
    June 28, 2004/s/ Stephen H. Goodman
Stephen H. Goodman
    
    Director
    
    June 28, 2004
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EMERSON RADIO CORP. AND SUBSIDIARIES
SCHEDULE IIVALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(In thousands) 
  Column A
    
    Column B
    
    Column C
    
    Column D
    
    Column EBalance at
    
    Charged to
    
    
    
    
    
    BalanceBeginning
    
    Costs and
    
    
    
    
    
    at end ofDescription
    
    of year
    
    Expenses
    
    Deductions
    
    year (B)Allowance for doubtful
accounts/chargebacks:Year ended:March 31, 2004
    
    $
    1,645
    
    
    $
    849
    
    
    $
    1,210
    (A)
    
    $
    1,284
    (C)March 31, 2003
    
    
    2,960
    
    
    
    2,546
    
    
    
    3,861
    (A)
    
    
    1,645March 31, 2002
    
    
    3,015
    
    
    
    1,543
    
    
    
    1,598
    (A)
    
    
    2,960Sales Return reserves:Year ended:March 31, 2004
    
    $
    6,061
    
    
    $
    14,619
    
    
    $
    15,650
    
    
    $
    5,030March 31, 2003
    
    
    6,072
    
    
    
    16,470
    
    
    
    16,481
    
    
    
    6,061March 31, 2002
    
    
    6,369
    
    
    
    15,266
    
    
    
    15,563
    
    
    
    6,072
  (A)
    
    Accounts written off, net of recoveries.(B)
    
    Sales return reserves amounts include related accrued sales returns
 of $2,521,000, $3,768,000 and $3,817,000, for fiscal 2004, 2003 and 2002,
respectively, which are not presented as part of the accounts receivable
disclosed as "allowances" on the Consolidated Balance Sheets.(C)
    
    At March 31, 2004, $140,000 relates to SSG discontinued operations
which is not included in the allowance for doubtful accounts/chargebacks. 92